Revenue & Tax - Senate

Reports that have been listed in statute and other places for years and years at the request of Senator Hester and uh looks like we're about down to our last 8. There may be some leftovers from DFNA that we're still gonna get some more information as we go along, but, so today, and I think we've got an updated sheet. this sheet actually has everything off to the left, so we'll go line by line, so the first one we'll be doing is with the Arkansas Department, excuse me, Arkansas Development Finance Authority, ADA. Uh, so if there's anyone here with them, would you please come forward? Yes, sir. And if you just, whenever you uh. Get to the mic, if you don't mind turning it on and introducing yourself and Mark Con, I'm president of Arkansas Development Finance Authority. OK, good to have you here today. So what we're doing courses, we're just trying to go through all of our reports, uh, getting y'all's input to see if you think that uh that particular report is of utmost, you know, importance, uh, and whether or not we should continue it and if we, if you say that you don't think we should and the members agree and what we're doing is developing a bill to repeal that that Senator Crow was carrying, OK. So we'll start with number one. OK? A bond issue program fact sheet, um, so this is a report after we issue bonds, it can be for a state facility use or it can be for a private activity use, so it could be for a hospital or steel mill or, you know, whatever that we've issued bonds. This is a, it's kind of a simple report that has some basic information on it, so it has the name of the bond issue and the coupon of the bond and how much it is. It's probably, you know, it is a public finance offering, so we have TEFRA hearings. We file reports official statements on Emma. We go through all of the process because it is a public process and so the information that you receive is very, very basic, you know, on the, on the bond issue, so it, it, there's a better way to get information of these transactions and Frankly, more details of the transaction you're just getting the very bare bones of the transaction, OK? And of course, time's unknown because that's based on how many you might have to have to do, so I think that's self-explanatory. OK. So, Yeah, it sounds like to me that, you know, that may be something that, you know, the members of the legislative council won't want to keep, you know, but uh what's your opinion as as far as the report? I mean, do you think it's We seldom, if I ever get a get a question about it because most of these are private market activities and the way we look at it from our perspective is, you know, we jumped through a lot of different hoops because it is a public finance, you know, offering, and so that is kind of to us checking the box on all these, you know, public information. I don't think it's real helpful other than just the very basics of the deal. Members have any Thoughts her. Questions or anything else as far as this one goes. No, uh I know that actually it seems like, you know, you all kind of operate. I'm not gonna say not say that at all. But anyway, it, uh, you know, I'm not for sure that. Some public disclosure like that may not be beneficial, but again, members want to hear from you all, I mean. Yes, sir. Senator Petty. They, even though they, uh, do a lot of other nonpublic, if you will, uh, transactions. That's a good way to put it. I couldn't find it a minute ago, um, I, I don't, unless, unless Mark says that this is something that that was requested often. I think a lot of the information is already out there when they do these other public hearings, and then obviously like some of these other reports, we can always ask for it. Uh, it's, it's. not a, a significant report, so my thought would be, you know, we haven't eliminated a lot. This sounds like one we could eliminate and they could gather the information if it was requested relatively quickly and easily. OK. Thank you, Senator Hickey. We, we have to one of the things we have to do is we have to get a proclamation from the governor's office. We have to hold tougher hearings. There's several things that we have to do to notify people to, you know, that were doing these transactions, so it's not we can't just go issue bonds and, you know, not tell anybody. We have to have public, we have to attend those tougher hearings and take questions, and we sometimes we get questions in writings from newspapers or various things. So the specifics would be the specifics would be out there at that point in time anyway, OK. that probably changes my mind a little bit. Yeah, the offering documents, all of it, OK. Anybody else, I mean, sounds like we can, we can eliminate this one or or attempt to eliminate it. We've got to go through the process. I keep saying that. Which we all understand that. So, OK, so if you don't mind, uh, Mr. Smith, if you'll, if you'll have our bureau to prepare that and. What Senator Crow's name on it. We're going to have to get a house sponsor on all these too, which I think Senator Crow is working on. OK, so let's go to number 2. OK, uh, capital access program report. I was just be short here. This is one that I would recommend that you eliminate. This is a small business loan program where we provide a reserve pool for small business loans, so we have no say in the underwriting or anything when we partner with the lender. So if a small business goes into a lender, they want a loan. The bank does everything. The only thing Provide is essentially like a credit enhancement, so we come in and we will say we'll put in 3% or 4% or we can go up to 7% and so we have a pool that we keep that all these lenders participate in. So if a loan goes bad, they can go to that pool and get paid back a certain percentage of that loan and so essentially it's just a pool that we're keeping a reserve fund, but we don't have anything to do with the lending of the particular funds. That's all done through a bank. Right. Any, any thoughts on that from the members. The average loan size 39,000. The average loan balance is 31,000 currently, so it's kind of a smaller. Right your recommendation is to eliminate this. I do. This is a private lending the banks keep all this on their balance sheet and We're the only thing we're really reporting is the amount and the loan reserve pool. OK. And, and I'm not don't want to put you on the spot just if you look, any idea how long that's actually been on our books under that code section. You know, um, I'm going to say at least Maybe close to 25, 30 years maybe. Yeah, I forgot about that. OK. Any other, any other thoughts? OK. I should have done this on the last one, so I'll cover it here. Anybody from the audience have any other input? OK. So will the committee then we'll have Brandon to uh. If you'll get our staff to do that particular one, we'll look to eliminate it or repeal it. OK, number 3. OK. Arkansas Institutional Fund. This is another one I would recommend to eliminate, and I, and I'll tell you why. So when back in 2001 when our when the General Assembly drafted some and passed some venture capital legislation. We, it was called the Arkansas Institutional Fund. Well, at that time we outsourced the administration and accounting of the fund to a group out of Oklahoma and the cost was about $400,000 a year administrative fee back in about 2014 or 2015 we brought the administration into the county in-house, so we didn't have to pay that particular particular fee, which is a good thing we do utilize our staff didn't hire anyone. Um, at that time we decided to, there were some issues with the fund that if we made any additional investments, we couldn't get out of this administrative fee. So at that time, I believe it was 2017. There was some legislation passed where we cleaned up the venture capital Act, and so what we did from that point on with the Arkansas Institutional Fund, there was like it just stopped, so those investments were inside of those funds, but any new investments went out of the Ark. venture capital development fund, OK, so Arkansas Institutional Fund still held the investments. It just, we didn't make any investments out of it. That allowed us to bring it in-house and save that $400,000. So This report that we are submitting is on a fund that's just in a wind down mode. There's about $3.5 million of equity investments left in it and all we're reporting on is just that fun, so no activity whatsoever. The only thing we do is file a tax return each year, and then, and we and state tax returns if there was investments that the fund made out of state, which it's usually very small, but so we file a tax return, send a report to you guys. We also are required to do an audit report on it. But we're there's no activity in the fund, so the investments are still out there. They're still whole, but there's no activity in the fund. But what, what you do need to keep is, and it's not on this list, is the reports that we send over for the current funds. And they're not on this list, so those are the ones you do want to see and you do want to keep. So really then did did the legislation that you mentioned in 17, they did eliminate that it would even go here. I mean that's it's OK. That's fair enough, yeah. I see no, no reason to keep that unless somebody on the table does so anyone from the audience have any additional input. OK, that one was uh Get that prepared also. All right, if you want to go to the next one. I guess we're on 4. I Nope, I'm sorry, that's AEDC OK unless you want to do it keep going. I'd suggest not, but you know it's up to you. Yeah, keep going. That's right. Alright, great, thank you, we appreciate it and like I say, that'll be be helpful and. Hopefully saved the state some money and save you all some time and it all all work the way it needs to commend you guys if we get it through the process. Yeah, that's you guys for tackling this because I think it is important and it's just less bureaucracy and it helps. It's Senator Hester was uh, he's the one that implemented this to get us rolling, so I won't give him full credit of that very good. Thank you. Thank you. OK, ADC, you out there somewhere? All right, great. I think you all know the drill. If you don't mind just sitting down, pushing your button, identifying yourself and And we'll just start. So Clint O'Neill, executive director AUDC. Drew Smith, Business finance director, AEDC. Good to have you all here. So, alright, have you seen what you see what we're doing, so number 4, that line 4, I guess is where we're at, report on super projects. Yes, sir. Uh, if I can make a comment before we start, so there are 3 reports from ADC on the list, and we're happy to address each one. It's our understanding there's actually 6 reports that are due to the legislature, so perhaps after we go through these three, if I could make a comment about the other three, that would be appreciated as well. If you don't, if you don't mind, uh, and I'd hate for you to have to come back, but if, if you wouldn't mind though, let's get those on with the staff and we'll look at all, we'll look at those too. I just want the members to have them ahead of time, uh, just a little bit. So if y'all found an additional 3, get with staff, we'll make sure that they, let me ask you one thing on those before that do you know if those are required in statute or were those reports actually actually required because of an action of Arkansas Legislative council. The other three that you're talking about. All three of the other ones are required by statute. OK, if they're required by statute, then yes, get them, get them to staff and so we have a have a week, we'll put you back on there cause again, DFNA they've got to uh They've got to come back before us on a few that we'd asked some questions of, OK, great. Glad you all found those too. So alright, let's start with the 3 that we found. So the first one on Super Projects, so this is the Amendment 82 report, Amendment 82 is a super project fund of which only one company has been enrolled in the program. It's bigger still in northeast Arkansas, so it's a, it's a program or it's a report that basically just tracks jobs retained and average hourly wage of those, not an overly burdensome report for us. It's something that we would keep anyway for our records just. For the maintenance requirement of the incentive program that they provided, we can do that without, with or without a report to the legislature, so appreciate the spirit of which this is being conducted in, I think it's probably well definitely worth the exercise of us. Doing and you know we don't want to be accused of not being transparent, so not an issue for us to continue submitting that as a report or just doing that in-house and having that. Available and ready. OK. Yes, sir, in history. He's one super project using it. Will it ever not be using it? So they have received all the benefits and they just have a maintenance period that they are required to report the jobs maintained and the average wage for quite some time, right, until yes I believe that the term of their agreement for that is gonna be 2033. 2033 is when I guess my, my only thought would be if we, if we eliminated this from the law, 2033, you could just stop it, right, that would be the only benefit. You say you're going to keep doing it anyway because you need to be responsible. That'd be my, OK. but not do I mean do you want to 2033, do you want to prepare that legislation to son said at the time, or would you have, I mean, there's a possibility you could have another one though. I know that this is a report that at least I, I will say this, I know that this is probably a report because I wonder where they've got, where they were getting information like the legislators from that area. I do know that they uh that they look at that because they want to know, you know, What those salaries are that are coming out of that. So I do know there probably are some of our legislators up in that area that are using it because we've discussed them. You know, what the benefit that that's created up there. Well, if it's helpful to know, I know you asked the question in a previous session like this, how long it takes staff time to produce each of those reports again this one's not burdensome a few hours of time just tracking down the information putting in it to a report. Yes sir, Senator Petty. I don't have a problem eliminating it necessarily, but I want to ask you guys, uh, Does it help having it in statute, knowing it's the law, or do you agreements have enough teeth in it anyway to to call back if there's, I mean, everything's good now, but if there's a problem, having a having it in statute for your purposes, health, or does it not really matter because you've got, you know, other agreements and clawbacks that that are just as enforceable. So as part of the agreements for the Amendment 82 projects, uh, they in the agreement is. yourself there is language that if they don't satisfy them, the clawbacks will take place. The code itself for this purpose is just really from a reporting standpoint whether or not we have to report it to ALC. Anybody have any issues with us keeping that around the table. Anybody from the audience have any input on this particular report. OK, let's, let's keep that one since you all are preparing it and like I said, I do know legislators are using that. And probably other other folks that are involved in that. Sure. All right. Yes sir. OK. If you want to proceed to the next one? Yes, sir. The next one is the ADC annual report, also called the 1282 report. For us this is the big report. It tracks all incentives signed in the in a calendar year economic metrics, multi-state comparisons, a list of recent economic development legislation and a kind of a forward looking analysis of the state. This one has taken a significant amount of staff time for a few reasons. One is for a staff change that we have recently made Drew Smith, our director of finance, has recently taken over leadership of putting this report together, so A significant number of hours. We found in looking at this report that there are things that we've really added to the report that are not necessarily mandated in statutes, so I think there's things that we can do just To ourselves to alleviate some of that burden. I do think it's a report continuing worth continuing as it That there can be a significant lag time because we're looking at not only projects in a calendar year, but economic data that sometimes doesn't come out for 6 or 8 months until the next calendar year. So we're just wrapping up the 2023 report now, which we'll be submitting in the next few weeks and then on the heels of that starting to collect data on the 24 report. So I, I think there's ways that we could alleviate some of the staff time and the burden and make that report not as long. It's, it's a very lengthy report, but again, in the spirit of transparency and the overall analysis, I would recommend keeping the report and just a comment that will incorporate the next report and the ones that we come back for would be incorporating the information in some of our reports into this 1282 report so that it becomes. of our our primary report, not just one of 6 reports. Good, good explanation, uh, unless somebody objects around the table, we keep, keep this particular report. Anyone from the audience will have any input before we. Continue. OK. All right, so let's, let's just keep that one. And then are you on, we're on 6, is that correct? Uh, yes, so the last one for us is our uh quick action closing report. So this is a report of all projects where we utilize the governor's quick action closing fund to close an economic development deal and has the list of companies awarded companies use of funds, the drawdowns and callbacks that were enacted during the review period. This is information that we would keep on file just as a part of project tracking. Again, if, if possible for us just to incorporate this information into our 1282 report. Along with the others that hopefully we get a chance to come back for that would be our recommendation. Senator Caldwell. Thank you, Mr. Chair. Clint, on any of these reports, I know we've done a lot in Mississippi County with big river and New Corps, uh, early on when we passed these incentives. It's based on current state income tax projections of what we'd make in over the last few years we've lowered that almost half. Do these reports take that into account or do do we get any feedback? as to Uh, how tax reductions affect the incentives and the payback of those incentives. You know, for, for instance, the first time we we used the, uh amendment for Big River projections were anywhere from 8 or 9 years pay back to 30 years payback and that that was based on basically 7% state income tax now it is down to 3.9, so obviously the payback time would be a lot longer. Uh, do any of these reports reflect the reduction of state income tax. Well, Senator, let me take a stab at answering your question. Maybe a little bit going the other way. So anytime that we engage with a project we run the impact implan cost benefit analysis and so for the projects that we executed, you know, say 10 years ago where the individual income tax was 7%, corporate was 6.5%. And we're looking at utilizing our incentive programs that have certain tax credits and payroll rebates and training grants and quick action. It's, it's based on that income that we were projecting at the time. And so as we look back at those cost benefit analysis, obviously as the taxes were reduced during that time. It impacts the true return on investment to the state of Arkansas. What we do is every time tax cuts are made, we make that adjustment into our cost benefit system. So fast forward today, you know, implant is is updated to the new corporate and individual income tax where we know that we're making decisions from a different lens today than we were in previous days when the taxes were different and so incentives may not be as favorable as they were 10 years ago, which we would always communicate as that's a good thing rather than taking taxes in and then giving you a tax credit we're simply lowering taxes. Um, so in terms of the reporting, the reporting is done, you know, immediately following The the, you know, for the, for the 1282 and for the quick action report following the year that we executed those incentive agreements and so I think we would have the ability to go and rerun those numbers, but it's, it's not an exercise that we've been doing for all that's fine. I just didn't know if, if, if y'all you can't predict today what we're going to do on tax revenue or tax rates 8 years down the road, you know, and that's kind of What's happened to us from from 10 years ago, 12 years ago when we first initiated the incentives for Big River and, and, and so I was just wondering if uh uh if, if, if y'all had any way or or did y'all play or account, I guess is the correct word, uh, for that, uh, after the fact, you look at it and, and and uh so uh again, it didn't take anything away from our projects for investments, but uh there again, we sometimes we uh our own worst enemies I'll vote for another. The rate reduction. I'm not saying that, but as we do that, we have to remember that on our incentives as a legislator that that we are basically not getting the rate of return we thought we were going to get, uh, because of that, there's nothing wrong with that. I'm glad we can reduce our income tax rates up, and I hope we continue to do that. So, but I just wondered if, if uh, if y'all had any way to reflect upon what the legislature has done because it does reduce our payback increases the years it takes to get that incentive money back, so to speak. Right, yes, sir. Thank you. I want to go just a little further since it's quick action clothes and fun because that's a little different I guess than some things we deal with, so whenever we come in, we In the session here or the fiscal session, we, we give you all this money, we give you this money to go into the quick action losing fund. Explain to me and and I may know know this, but and the other members. So at that particular point, And you all are the executive and the executive and you together, however that works. You all can just use money out of that quick action housing fund, or do you have to come before ALC. Before you can actually spend it, what's the, what's the process so that we'll know that. Yes, sir. The approval process, once the General Assembly puts money into the fund is it's approved just how much we did this last. How much did we do this last time? Do you believe it, fair enough. Um, so the governor has approval to To, uh, you know, Give us the authority to move forward with that without a one-off permission from ALC on each of those projects, right? which again, we're we're policy here, nothing, nothing against the current executive branch or anything like you all, we just look at policy, you know, from now to cover any governor and any any of y'all's staff or whatever. I almost I almost feel that maybe we need to keep this just because of what that particular fund is, again, I think it probably gets less legislative oversight, maybe rightfully so if y'all need to move quick or there's something out there that needs to be done. That would be kind of the way I see in the show, you all think different on that particular one. I did, I did hear you say something about if you could incorporate it into another report. Does that help you all if we look at trying to to to eliminate this particular one and incorporate it in the other, or is it really make any difference I wouldn't say it makes a big difference. OK, fair enough. I just wanted to make sure that if it did, that we were proactive to help you there, but. Anybody in the audience have any other, uh, statements, questions, input on this. OK, so again, I feel that there's probably an importance to keeping that report just because of the way those funds are actually. Actually handle personally so. Good work. No, we appreciate it and if you said, you all said the 3, so if you'll get those to staff and then, uh, figure out what's a good time for you all and we'll just have you all back to. Uh, we'll go over those to see if we can. Either eliminate them or whatever else you want to do. I assume since you bringing them up, they may be pos possibly be ones you think we could eliminate. Yes, sir. OK. All right. Did you have any others that you didn't think that we should eliminate, or was it just limited to those three mainly. I don't think we were looking at those 6 that that have the statutory authorization and you know, frankly on some of the other ones that we that we have, I mean one of them's a quarterly report that sometimes doesn't even have any information to go in, so I think it's a great exercise to go through to clean up. So whether it involves eliminating or streamlining I appreciate you guys bringing this up. OK, great. Thank you. We appreciate y'all being here. All right, right. I guess the next one we have is Department of Inspector General Tax Appeals Commission. You just push the button and introduce yourself and I guess you're gonna have 2, so you can begin with number 7. Great. Thank you, Mr. Chair, Matt Bock, Chief Commissioner, Arkansas Tax Appeals Commission. Good to have you here, Matt. Great to be here. Uh, first report is the annual report of the Tax Appeals Commission, Tax Appeals Commission is an independent tax tribunal, part of the Department of Inspector General, Our proceedings are confidential, so there's very little visibility into the into our case load into our cases, except for our decisions that are published on a redacted basis, uh, so this report, it's a useful management exercise, frankly for me, it takes about 10 hours, uh, 10 hours a year to. prepare and it, it provides basic statistics about our caseload and decision results. OK. Do you get requests from legislators that want to see it or uh just so by statute, the report goes to the chairs of ALC and the chairs of judiciary as a custom I've copied the shares of Reverend tax. Uh, I've never gotten any questions about it, frankly. Senator Hester. So, uh, I think we got it a couple of weeks ago, right? Are you seeing the, the, the, the use. Go up. I mean, like there's a, there's a concern that um Because there's a timeline. It That the general public has to use it. So like the FNA refers everybody to you if they've got a concern. Maybe out of the months of caution because they don't want to miss the timeline, but it is your, is this growing tremendously. The so our case load in, it's actually declined by about 10% compared with 23 with 24, uh, caseloads remain relatively stable, declined a little bit. If we, if we didn't have this report, I mean, of course it's a public report since it's being done the way it is, so Would there be any way, would there be any way for the public to know what your decisions and your outcomes were on stuff so the decisions would still be published on a redacted basis. Someone would have to compile the statistics on their own, going through all the all the paperwork. Instead, we're pulling that information from our internal database. Would that be just as it related to the caseload though? I mean, I mean they would still know what your decision and outcome that was correct? Yeah, they would know so of the. Say of the 419 decisions that we issued, those are all on the website. People could look them up. The jurisdictional dismissals where we, we basically kick a taxpayer out, those would be on the website as well, uh, the voluntary dismissals or the information about the number of petitions coming in would not be publicly available. OK. Do you want to keep the reporting statute or not keep it in statute. Uh, I find it to be a useful exercise. Uh, we'd probably do something similar internally anyways. We're happy to share the information with the public, but if it, if the legislator legislature finds it to be. Not terribly useful, we get rid of it. Well, if you're gonna do it anyway unless Senator Hester, you, you got another comment? Well, I do what I, what I immediately looked at when I, when I saw the report the other day was, what percentage of people are winning, right? It's easy to poke on the tax man. They're doing their job right, but Uh, I think our, our, the people of Arkansas were losing 90 or 95% of the time on appeal. Now they're losing half the time or what is that? I think it's about 2/3 of the time, roughly. Uh. Yeah. That, that, that was the most interesting thing for me to watch, um, and so that's not some drat, well, I don't know. Uh, 20% maybe change in that uh on the amount of times the taxpayer won, but yeah, I'm not poking even at that. They're, they're, they're doing their job right, and then we have to do our job too. So anyway, that, that's interesting. That was the only thing I really wanted to follow on it. Yeah, if you want the information about results of different case subtypes, we have normal appeals, tax assessments, refund claim offsets we have, uh, joint refund offsets, which is a specialized form of spousal relief. We have business closures. If you want results about the specific subtypes of cases, uh, that could be provided. So I'm good All right. Is anyone from the audience have any, any input or questions? In regards to this report. Unless the committee objects. I'll say this one we, we, since they're gonna be doing it anyway and it sounds like we're getting some valuable information that uh we should just keep it. OK. All right. Well, let's just keep that one and then let's go to, I think you got one more line 8. The next one's just a normal committee report about our the commission meets as a public body for the purpose of rulemaking and to a certain extent for stakeholder feedback, uh, so it's just a typical boards and commissions report of public meetings. It was our report for the prior cycle was integrated in the Department of Inspector General's report, uh, dated August 1st, 24. Basically your minutes. I mean, it's, yeah, that one we actually during the prior cycle, we got our initial rulemaking done and then we didn't meet publicly for over a year until the more recent rulemaking cycle, and so there was in fact nothing to report on that one. The next cycle will report more activity. You wanna, you, you, what's your opinion as far as a statute of it, keep it or don't keep it. Um I mean, it's sort of, it's almost cause it's all boards and commissions, uh. It's takes an hour to prepare if it's helpful for y'all, right, that's if not keep it or. Mhm Yeah with keeping it. Anyone from the audience have any input on this one or anything they want to say. OK, we'll keep that report. All right, we, we appreciate you being here and uh appreciate your work. Good to be here. Thank you. OK, remember that's the only thing that we had had on the agenda next week, uh, you know, Mr. Geering and and staff have been doing, trying to get the fiscal impacts prepared and you know, that's a pretty Pretty stout job to do. We do have a couple that do not have fiscal impact, so we're going to go ahead and You know, that are those specific to we're going to take off and just put on there. If the members are here, we will hear hear those. Mr. Garing, if you all want to have any updates on the uh Other reports that we discussed and you know. You can let staff know and we'll put you on the agenda that also do those. So if not, we'll we'll do another meeting. So anything else? Yes, sir, Senator Petty. There were 2 or 3 reports that we were going to get copies of. Last from our last meeting and I don't know if I missed them or if they just because they were tied up with other things. They haven't sent them yet or if they send them to staff, I, I just was that the ones that were discussed in here? Yeah, and I made notes on my sheet and we have a fresh sheet, so I don't know. OK, uh, do you remember what those may be? Sure. Is that OK? Perfect. OK. Anything else? Any of the members have anything come before us? All right, we'll, with that, we'll be adjourned.