Audit: some Arkansas business incentives ineffective, wrongfully give away tax breaks



(The Center Square) – An evaluation of nine different types of economic incentives found only four had a confirmed positive cost-benefit to Arkansas, according to a special report.

Of the remaining five, two were deemed to have a negative cost-benefit to the state and the other three were inconclusive, according to the report presented to the Legislative Joint Auditing Committee Friday.

The report looked at over 70 projects spanning a decade under the Consolidated Incentive Act (CIA) of 2003 to determine their effectiveness.

The funds were awarded through the Arkansas Economic Development Commission (AEDC) and the Department of Finance Administration (DFA) and were broken up by either statutory incentives, in which companies apply for the money and must meet the requirements, or discretionary incentives that were left to the discretion of AEDC.

Three of the four statutory incentives resulted in a positive cost-benefit to the state while three discretionary programs were “inconclusive” due to not being as actively used, according to the report. Two programs that were found to have a negative cost-benefit to the state were the statutory and discretionary research and development programs.

This was despite the fact that legislation in 2019 altered the research and development programs, the report found.

The report also found flaws with AEDC’s verification process which led to ineligible or undocumented company expenses being allowed to count toward income tax credits awarded as part of research and development programs.

In one case, a company received $1.2 million in state income tax credits based on stock awards and stock options, but the company operated as an LLC and didn’t have stocks or stockholders, according to the report.

In another case, two companies received $2.3 million in state income tax credits but provided vague details that required more documentation, the report said.

Another $438,592 in income tax credits was awarded to five companies in 2019 and 2020 with no supporting documentation, the report found.

Furthermore, a calculation error led to a company being awarded $88,883, which was above the allowed amount, according to the report.

Just over $667 million was awarded to the projects that were evaluated. Broken up by region, the money disbursed $73.4 million to Southeast Arkansas, $125.7 million in Southwest Arkansas, $144.9 million in Central Arkansas, $101.5 million in Northeast Arkansas, and $221.6 million in Northwest Arkansas, the report said.

It recommended AEDC re-evaluate the process used to award tax credits to ensure that expenses are valid, accurate, and allowable, among other things.

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