Steel Mill makes it into the Wall Street Journal
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Lawmakers in Arkansas are justifiably anxious to jump-start economic activity in rural areas of the state. Having spent some of my childhood not far away in Missouri, I’ve seen what life is like in a region where 26% of the population live in poverty and 24% don’t graduate from high school. It’s stark and disheartening. So it’s understandable that Arkansas state legislators want to boost economic activity in a county where unemployment stands at a dismal 9.6%.
Corporate welfare for speculative business ventures is a dismal way to go about reviving the economic fortunes of the state’s rural areas, however. But following a January proposal from Democratic Gov. Mike Beebe, the Republican-led Arkansas legislature in April passed a law that will take $125 million from state taxpayers to subsidize the flagging steel industry.
The misguided endeavor seeks to create jobs by sweetening the deal for a $1.1 billion steel plant that newcomer Big River Steel plans to build in Mississippi County, a rural area in northeastern Arkansas with a declining population. Employment from the project would be tenuous at best. Big River Steel estimates there will be 2,000 temporary slots during the projected 20 months of plant construction, but only about 525 permanent jobs—and then only assuming the mill runs at full capacity.
Making matters worse, it’s a good bet that some of those 525 lucky souls will be from out of state—a trend seen in similar taxpayer-subsidy scenarios when jobs demand expertise not typically present in the local labor pool. Given the $125 million subsidy, that means taxpayers will cough up nearly $240,000 apiece for 525 jobs that pay $70,000 a year—and with no guarantee that they would go to Arkansans, especially since the mill will be just across the Mississippi River from Tennessee.
These jobs might not even exist over the years—not yet determined in this case but possibly 30 years—of the $125 million bond issuance made up largely of loans and construction funds.
This $125 million also doesn’t include county and city perks. Leaders in Mississippi County, where the plant will be built, and the county seat in Osceola, have approved an additional $16.5 million in incentives in the form of development funds. Also on the table is at least $216 million in state scrap-metal recycling income tax credits. The recycling boondoggle bumps the price tag to almost $650,000 per job.
During the debate over the subsidy, Republican state Rep. Stephen Meeks rightly described the proposed steel plant as a “money pit for this state.” His skepticism was reasonable in part because Big River Steel is a new company without a track record or existing customer base.
The CEO, John Correnti, was formerly with Nucor which operates two steel mills in Mississippi County and has warned that it could be forced to move jobs out of Arkansas if Big River Steel drives up demand and thus prices for raw materials. Mr. Meeks also has pointed out that globalization has oversupplied the steel market, and China is producing “more steel than it can handle.”
The numbers speak for themselves. As The Wall Street Journal reported in an April 2 article about the Arkansas subsidy when it was still being debated, steel companies have tried and failed since November to ramp up prices for their products, and yet the benchmark U.S. hot-rolled coil-steel price is down 8% from last year. Pittsburgh can testify to the decline of the U.S. steel industry, as can RG Steel, which last year declared bankruptcy at its three plants, including a large mill near Baltimore.
Big River supporters say their new plant will differentiate itself by producing specialized or “niche” steel—for instance for auto bodies, gas tubing and electric motors—yet the gambit could marginalize the newbie mill into further obscurity. A fragile economic recovery is no time for such speculation at such a high public cost.
It also is no time for state politicians to pose as venture capitalists when they could more productively be making the business environment hospitable for every industry. Arkansas ranks near the bottom in the nation—at 40th—for its lack of regulatory freedoms, according to a 2013 analysis of the most-recent data available from states by the Mercatus Center at George Mason University. Its scores are even lower in areas that measure things such as a state’s liability climate, its burden of occupational licensing requirements, and the extent to which eminent-domain laws undermine the protection of private property.
Taxpayer money spent to prop up manufacturing jobs might better be directed to prepare rural Arkansas students to compete in the knowledge-based economy. The state receives poor marks from the American Legislative Exchange Council in several key indicators for its relative lack of support for charter schools and its chronic inability to close education achievement gaps for low-income students. A quarter of students in Mississippi County don’t finish high school—children left further behind as the education premium in our economy grows.
State legislators won’t explain why they’re using 19th-century tactics in a 21st-century economy, doling out old-fashioned snake oil in place of advanced pharmaceuticals. At least Solyndra had the patina of modernity.