innovate arkansas

Gov. Mike Beebe and Arkansas economic development officials have put great emphasis on the need for the state to attract knowledge-based jobs. The goal? Bring Arkansas' per capita income, now third from the bottom among the 50 states, to the national average of $38,611.

Although the state has made progress, the majority of new-business announcements in the last year have concerned relatively low-wage manufacturing jobs, jobs brought to the state with the help of generous taxpayer-funded financial incentives.

The state faces two roadblocks to achieving the much-hyped, much-hoped-for knowledge-based economy:

• A stagnant national economy that may be slipping into a recession. In such times, almost any job is better than no job.
• A lack of skilled workers to place in those desirable high-tech, knowledge-based jobs.

In this environment, the desire for improvement confronts reality.

There need to be jobs for all Arkansans, Kathy Deck, the director of the Center for Business & Economic Research at the University of Arkansas at Fayetteville, said in an e-mail to Arkansas Business.

While the knowledge-based jobs pay the most, many of the high-wage jobs don't match the education or skill level of the state's work force, she said. To get the better jobs, Deck said, the skills of the state's work force have to be raised.

"I think that economic developers should be happy whenever they are able to bring jobs into the state," she said. "Of course, higher wages are better than lower wages. But a $30,000 job is nothing to sneeze at."

The No. 1 goal for the Arkansas Economic Development Commission is to get the average wage of Arkansans up to the national average, said Scott Hardin, manager of marketing and communications for the AEDC.

The AEDC has a long way to go. Arkansas' per capita income in 2007 was $30,060.

Some of the largest manufacturing announcements in recent history for central Arkansas came between June and July. The wages to be paid by several of those manufacturers fall below the national per capita average of $18.56 an hour, and in some cases considerably below the state per capita average hourly wage of $14.45.

Welspun Gujarat Stahl Rohren Ltd. announced on June 30 it was building a $100 million manufacturing plant and needed 300 workers to make tubular steel pipes for the oil and gas industry. Welspun is expected to pay $9 to $11.50 an hour for unskilled workers, $12 to $14 an hour for mid-skilled workers and $14 to $16 an hour for high-skilled workers. But about 150 jobs will be for unskilled workers, and only about 60 jobs will be for the high-skilled workers.

Then on July 18, LM Glasfiber said it would spend $150 million to build a plant at the Little Rock port. The company projects having 1,100 workers by 2012.

LM Glasfiber is expected to pay between $13 and $17 an hour.

One exception is Dassault Falcon Jet, which on June 13 said it would spend $20 million on expanding its jet completion center in Little Rock. The expansion called for adding 200 workers who would be paid an average of $20 an hour.

Another manufacturing plant that approaches the goal of offering wages close to the national per capita average is England OilField Services Inc., which broke ground on its new manufacturing plant at England (Lonoke County) in May.

The company received between 600 and 800 job applications after breaking ground, said Daniel Andrews, vice president of England OilField, which manufactures field equipment for natural gas and oil drilling.

The average hourly wage at the plant is $18, with 75 percent of the employee's health insurance paid, he said.

The company now has between 45 and 50 workers and could reach 175 employees in two years.

'A Necessary Evil'

To lure companies to Arkansas, the AEDC will offer financial incentives.

When England OilField, whose parent company is Rig Up Services of Channelview, Texas, came to Arkansas, Beebe gave England city officials a Community Development Block Grant of $1.3 million to pay for infrastructure improvements at the England Industrial Park, where England OilField is located.

England OilField also qualifies for tax incentives if it meets performance goals. How much the state pays for meeting those goals, though, is not released to the public, said Joe Holmes, the AEDC spokesman.

Before financial incentives are awarded, the AEDC does a cost-benefit analysis to determine if the project is worth giving incentives.

To compete with other states in attracting companies to Arkansas, the state has to offer financial incentives, said Jerry Adams, chairman of Accelerate Arkansas, a group of 60 leaders trying to build a knowledge-based economy. But awarding companies public money to move to a state - any state - has come under criticism.

"You are basically granting political favors to outsiders that you're not even granting to people that live there," said Michael Rizzo, senior economist with the American Institute for Economic Research in Great Barrington, Mass. "Lots and lots of communities are competing to have businesses come to their state. If everyone does it, you'll end up bidding up the price of that thing."

However, offering financial incentives to bring a company to a state is expected now, said John Boyd, president of the Boyd Co., a corporate site consulting firm headquartered at Princeton, N.J.

"They're a necessary evil," he said. "For states to compete, you have to have in your arsenal financial incentives."

Competition between states has become fierce, and financial packages have become more expensive. When LM Glasfiber announced it was coming to Little Rock, the AEDC said the state awarded the firm $8 million in economic infrastructure funds and $6.9 million from the Governor's Quick-Action Closing Fund.

That would be more than $13,500 for each of the 1,100 new jobs Glasfiber said it is bringing to Arkansas.

The $14.9 million wasn't just handed to the company, Holmes said. The money went for roads and infrastructure that also could be used by other companies.

LM Glasfiber also could receive additional tax incentives through the state if the company hires a certain amount of workers at a set wage, Holmes said.

Boyd said states can't be picky when it comes to bringing new industries to town.

"There are only a handful of corporate relocation projects out there each year," he said. "And there's literally thousands and thousands of competing communities. Budgets are big in states to attract industries."

Financial incentives may be the tipping point for some companies, Rizzo said. But most firms make their location decisions based on the availability of a skilled work force and the quality of communities.

"Wages in Africa are the lowest in the world," Rizzo said. "But why aren't the manufacturers going to Africa? Well, it's more than just wages."

Arkansas has learned that the hard way. Officials at Hino Motors Manufacturing at Marion, which opened a $186.5 million plant in 2006, were "terribly disappointed" in the work force, Gov. Beebe has said. Turnover rates were 40 to 50 percent and the parts that were being made were faulty.

After that experience, even a hefty package of incentives couldn't persuade Hino's parent company, Toyota Motors Corp., to locate a $1.3 billion, 2,000-job automotive plant at Marion. (Fortunately, a new candidate screening program has solved Hino's hiring problem.)

Rizzo said the government shouldn't be involved in awarding public money to companies looking to come to an area. He said he wouldn't trust a government to pick a successful business.

"They can't even get potholes fixed in the road," he said.

But Hardin said AEDC's cost-benefit analysis considers such factors as the investment the company is making, the number of jobs being created and the location of the plant. For manufacturing jobs, the AEDC looks for industries that are growing not only in Arkansas but nationally. "If they don't meet that criteria, then we're not going to put our marketing dollars behind recruiting," Hardin said. "We don't want to go after these manufacturing jobs that are going away."

"The projects that have been announced certainly have good wages associated with them," said Jay Chesshir, president and CEO of the Little Rock Regional Chamber of Commerce. "We certainly aren't recruiting companies and jobs at below market wage rate, given that would not be successful for either the company or Little Rock."

The positions at the newly formed jobs require a higher skill than the manufacturing jobs of the past.

Hardin said employees might see more money as the companies grow.

"These are companies with an international reputation that we feel like will be a great career," Hardin said, "and help provide for a lot of families."

To the Future

While landing manufacturing plants is good for the state, the AEDC also needs to focus on growing knowledge-based jobs, which pay more, said Adams of Accelerate Arkansas. The group's goal is to achieve parity in per capita income with the U.S. average by 2020.

The state's economic future depends on the ability to create knowledge-based jobs, Adams said.

In addition to going after manufacturers, the AEDC is targeting technology companies and companies in the clean and "green" sustainable industries.

Hardin said no technology companies have been announced, but a green industry has.

In October, Nucor Corp. and the Heritage Group said they were investing $29 million in a new company: Pizo Operating Co. LLC in Blytheville. Pizo will hire 49 people to process electric arc furnace dust from the Nucor Hickman and Nucor Yamato steel plants in Mississippi County, converting it into products for use in the metals industry.

Pizo received a Community Development Block Grant worth $1.5 million for infrastructure improvements.

The average pay for the workers was unavailable.