Arkansas: A real approach to economic development
By Mike Randle
There is something missing from Dennis Cuneo's email (view PDF) to me the morning of February 27, 2007, at precisely 8:58 am that is displayed here on this page. Note the time. It was two minutes before Cuneo took the stage with then Mississippi Gov. Haley Barbour to announce that Toyota had selected a site near Tupelo, Miss., for an assembly plant over two other short-listed sites in Chattanooga and Marion, Ark.
What's missing in the email is that while Chattanooga is mentioned, there was no mention of Marion, Ark. We went on record in late 2006 saying that Arkansas would get the Toyota plant for a variety of reasons. It did not.
By looking at the scan of the actual email sent to me, it looks as if my friend Cuneo, the site consultant on the project, simply forwarded me what he sent to Tennessee officials. And there is a reason he did that.
I wrote about six months before the February 2007 announcement that, "There has never been a new automotive assembly plant built on a former brownfield in the Southern Automotive Corridor and Toyota will not be the first to build one." I was correct with the statement, but I shouldn't have written it. My statement went all the way to Japanese media properties and caused a small uproar among the environmentally-friendly Toyota brass.
Of course, Volkswagen, with its facility up and running for two years now at that former brownfield in Chattanooga, completely blew my argument away. VW seems to be doing just fine in Chattanooga.
The fact that Marion, Ark., wasn't mentioned in the email from Dennis has always bothered me. Marion is located just across the Mississippi River from Memphis. Hino, a Toyota affiliate, seemed to be very happy operating in Eastern Arkansas. But things are not always as they seem.
"Toyota cited their concerns about the Arkansas Delta region's capacity to supply and maintain the facility with a high-quality labor force," said Dr. Glen Fenter, President of West Memphis-based Mid-South Community College. "We used the loss of that opportunity as a wake-up call, a road map of what we wanted our future to look like.
"Clearly, this region of Eastern Arkansas is much better prepared today to provide the workforce needs of any company and any size project. That will be the case in the future," Fenter said. In other words, Eastern Arkansas, commonly called The Delta, used the Toyota disappointment to ensure "our region will never let that happen again."
Dr. Fenter's plain-spoken admission that the labor force in the Delta Region of Arkansas may not have been ready for Toyota back in 2007 is refreshing to me. The fact that Fenter and others throughout Arkansas have led a massive worker training buildup to address any competitive weakness is even more refreshing. More than that; it is monumental. Why? Arkansas is leading every state that I know of in worker training. Others might not agree. But I have seen it first-hand in Arkansas, as I have seen worker training models in almost every Southern state first-hand. That's not advertising blather from this journalist. Not convinced? Okay, check this out:
The Arkansas Delta Training and Education Consortium (ADTEC), a collaboration of community colleges in Eastern Arkansas, has been recognized as the nation's No. 1 workforce model by none other than the U.S. Department of Labor. Also, ADTEC was named as one of the top 10 workforce training models according to a study sponsored by the Bill and Melinda Gates Foundation. Bill Gates knows the Delta Region? Bill Gates knows Arkansas, perceived by some as the largest "county" in Texas? Cool.
Opening Arkansas to the world
It's not just Bill Gates that knows Arkansas. It's the Rockefellers, too. Winthrop Rockefeller, son of John D. Rockefeller, Jr., and brother of Nelson, David, Laurance and John D. III, knew Arkansas. Winthrop is known as the first person who introduced the world to Arkansas, the South's second smallest state with a population that is just shy of 3 million. And you thought the person to introduce the world to Arkansas was Sam Walton or Bill Clinton.
New York-born Winthrop Rockefeller moved to central Arkansas in 1953 and established businesses in Conway County. Two of the ventures were Winrock Farms and Winrock Enterprises. He then became known as the "Arkansas Rockefeller."
According to the Winthrop Rockefeller Institute of the University of Arkansas system, Rockefeller "found the freedom to carve out a personal space to address the issues of what was once the poorest state in the union."
For 20 years he lived on 188 acres atop Petit Jean Mountain near Morrilton – Winthrop died in 1973 – and hosted more than 200 conferences and meetings that addressed such concerns as educational needs, rural economic development, water quality, race relations and public/private sector policies. The meetings were regularly attended by state leaders. But they were also regularly attended by national leaders.
In 1955, Rockefeller became the most famous economic developer in Arkansas history when he was appointed by Democratic Gov. Orval Faubus as chairman of the Arkansas Industrial Development Commission. But "Winrock" was no Faubus supporter. Dixie Democrats in the South ruled in the '50s and '60s and beyond, and Faubus, along with George Wallace of Alabama and Lester Maddox of Georgia, held court on the national scene in the region.
Rockefeller's campaign for the governorship in Arkansas as a Republican in 1966 was the first real transition in the South from "Dixie Dems" to the Republican stronghold that it is today. In 1966, only 11 percent of Arkansans considered themselves Republican. That year, Winrock's policies, ironically very Democratic in today's world, propelled him to become the first Republican Governor of Arkansas since Reconstruction.
Successful economic development does not require unabated growth
I am no Bill Gates or Winthrop Rockefeller by any means, but I see what both great men saw in Arkansas after traveling the state in the summer quarter. I now understand what Rockefeller helped to develop five decades ago in Arkansas. He developed leadership and some of the leaders from Arkansas are legends, including Sam Walton, Alice Walton, Dale Bumpers, David Pryor, Mike Huckabee, current Democratic Gov. Mike Beebe and, of course, Bill and Hillary Clinton.
And true leaders check their egos at the door, which is also refreshing to me considering how many "sales pitches" I hear from states and communities in the South. I spent three weeks in Arkansas in August and September and as a result, my view of the state and my three-decade view of the practice of economic development in general have changed. Arkansas is proof that successful economic development does not require unabated growth.
For example, states in the South spend an inordinate amount of time recruiting new industry. It's easy to see why. The South has grown dramatically over the years to a population today that is larger than the Midwest's and Northeast's combined. In the 1950s, the South, Northeast and Midwest had about the same population. But migration to the South in the last six decades has snuffed population growth in the North, while at the same time creating challenges for leaders in large Southern states to generate jobs for the millions who have relocated to the region. It is a never-ending task.
Arkansas has seen growth, but nothing like that of Southern states such as Florida, Georgia, North Carolina, Tennessee or Texas. Is that a bad thing? No, it's not. In fact, it's a great thing for your business if you are looking to locate to a state in the South where its officials don't operate under conditions where their hair is always on fire.
Arkansas' economy is a real economy
"Arkansas' economy grows at a relative rate instead of a bubble rate," said Jay Chesshir, President and CEO of the Little Rock Regional Chamber of Commerce. How refreshing is that? How refreshing is reality, as in "real growth," as opposed to growth that is based on the latest and greatest bubble?
Sources such as Moody's and Brookings lauded Arkansas' economy during the Great Recession because of its stability. In addition to those sources, we wrote two cover stories, one in the Summer 2008 edition, titled "Recession? What Recession?," where we praised Arkansas' economy, and the other in the Spring 2009 issue titled "Counter Cyclical," where we also cited Arkansas' ability to turn big deals in difficult times. Some of those large projects landed by Arkansas included Caterpillar, Nordex, HP and Welspun.
Ironically, now that the economy is "bubbling" again, Moody's and others, including SB&D, have written things not so positive about Arkansas' economy in the recovery. "When you don't have the bounce because you didn't have the crater, Arkansas gets overlooked sometimes in a recovery," said Chesshir. How real is that statement?
The word "crater" is known all too well by the larger states in the South, except for Texas and Virginia. That's because other than those two, they all cratered shortly after that big bank sank in October of 2008. Some large Southern states saw unemployment rates that topped 11 percent. North Carolina's unemployment rate is still near 10 percent.
In comparison, Arkansas' unemployment rate peaked in July 2011 at 8.2 percent – the highest rate in state history – and the state's current unemployment rate stands slightly above 7 percent. Arkansas' unemployment rate entering the Great Recession was right at 5 percent.
That's what you get when you do business in Arkansas; stability, in more ways than one. In the Summer 2011 edition of SB&D, we published this editorial titled, "Arkansas quietly goes about doing its business very well."
Which states in the South avoided disaster during The Great Recession? There were really only five: Arkansas, Louisiana, Oklahoma, Texas and West Virginia. Unemployment rates in those five states never came close to rising above the national average in the recession and they continue to do the same. Collectively, the five states sported an unemployment rate of 7.5 percent in August (2011), more than a point-and-a-half below the nation's unemployment rate in the same month.
What do those five states have in common that could have possibly shielded them from the worst economy in our generation? Well, four of them earn massive amounts of revenue from oil and gas and other mineral extraction. Then there is Arkansas.
Arkansas particularly stands out in that regard and that isn't a coincidence. Arkansas was the only U.S. state that defaulted on its debt during The Great Depression. When the default process ended in the 1940s, the state enacted what is called the fiscal stabilization act. That budgeting process has worked quite well even in the worst of times and it is incredibly simple.
Every two years Arkansas lawmakers divide funding requests into three categories; A, B and C. "A" represents essential programs such as education, Medicaid, transportation and corrections. "B" represents essential and non-essential items such as expansions of the previously mentioned programs and cost-of-living increases for state agencies. Category "C" makes up the implementation of new programs and for the most part, items in this category are rarely funded in an economic downturn.
After establishing the categories, selected members of the legislative and executive branches meet behind closed doors to match up the categories with state revenue projections. Category A is completely funded initially, then they move on to B and if anything is left, certain items in category C may receive funding. The process enables Arkansas lawmakers to approve the budget without political battles. But it doesn't end there. Revenues are monitored daily to make sure they meet projections and if they don't, cuts begin with category "C" and then move up.
"Arkansas may not be the South's biggest economic development dynamo. Yet, when it comes to fiscal health, Arkansas has few peers."
That was written last summer. This summer, Arkansas ended its fiscal year with a $145 million surplus, and total revenues of $4.7 billion were a record for the state, even though Gov. Mike Beebe's administration lowered the grocery tax from 6 percent to 1.5 percent.
In addition to sound government fiscal policy in Arkansas, the state's banks didn't crater in the recession either. The return on assets at Arkansas banks remained positive throughout the recession and early recovery. The only dip Arkansas banks saw during the recession were troubled assets they carried by absorbing failing out-of-state institutions.
In an age when almost all states in the South are suffering severe fiscal pain, it is remarkable to see a state like Arkansas not only avoiding fiscal disaster during the recession, but thriving as a result of the way it manages its government finances during the recovery.
A real creative approach to BR&E
Another way Arkansas is thriving is business retention and expansion. I thought I knew what a sound BR&E policy was until I saw first-hand how Arkansas does it.
Arkansas is the headquartered home of world-class companies such as Wal-Mart, Tyson Foods, Murphy Oil, and Dillard's, among others. Major Arkansas-based operations from Caterpillar, HP, Welspun, ConAgra, Nestle, Frito-Lay, Nucor-Yamato Steel and hundreds of other well-known corporate nameplates dot the map throughout the state. These operations are thriving and one of the reasons is their relationships with the various economic development entities in Arkansas.
"Every job is important and retention and expansion is a huge issue in Arkansas. . .and we treat it that way," said Mark Young, President and CEO of the Jonesboro Regional Chamber of Commerce. I observed that commitment throughout the state. I truly believe all economic developers in Arkansas understand that every single job is important. And when you have the luxury of sound fiscal policies and a population that isn't growing by the minute, it makes for a situation that is manageable. In fact, almost everything I saw in Arkansas is manageable. That is so refreshing in today's hair-on-fire economic development scene in the South.
One of the most compelling retention stories I have ever heard in my career happened in tiny Newport, Ark.
Right after Christmas, a fire destroyed a large part of Taylor Made Ambulance's plant in Newport. The plant would have to shut down for two or three months to allow their insurance company's vendors to clean up and rebuild. As with most companies, Taylor Made was concerned about losing key employees during an extended layoff. The Newport Economic Development Commission began to look for ways to assist in retaining these jobs and employees, and they came up with an idea.
First, Taylor Made went to their insurance provider with a proposal – how about allowing the company to use their own employees for the cleanup and a substantial portion of the reconstruction? Since Taylor Made Ambulance employees were very familiar with metal working and construction of vehicles, those skills translated well to the project. However, by the time that Taylor Made reached this agreement, they had been shut down for several weeks and had a significant cash flow crunch. The insurance provider would only pay on a reimbursement basis, so Taylor Made needed to be able to fund two weeks of payroll and supplies before the first reimbursement came through.
The Newport Economic Development Commission awarded a grant of approximately $35,000 to Taylor Made to cover the first two weeks payroll and supplies. The grant was to be repaid at the end of the project. However, the Commission put a caveat in the grant agreement: If Taylor Made were to purchase a new piece of equipment at the end of the reconstruction process that would improve their operational abilities, then the Commission would completely forgive the grant amount.
The company kept their employees working through the time they were shut down, retained those employees and jobs in the county, and expanded their ability to work more efficiently. "Working with companies on creative ways to create and retain jobs is vital for a small town like Newport," said Jon Chadwell, Executive Director of the Newport Economic Development Commission. "Recruitment is important, but if you gain 100 jobs in the front door only to watch 100 go out the back door, you really haven't gained much." Amen to that.
A really well-fed economy
Arkansas' economy is as diverse as you will find, similar to its geography that ranges from the mountainous regions of the Ozarks and the Ouachita Mountains to the eastern lowlands along the Mississippi River.
Agribusiness is huge in the state of Arkansas. It ranks No. 1 in the U.S. in rice production and in the top three for cotton, poultry and catfish production. Arkansas is also first in the South in softwood lumber production.
Industrial outputs include automotive parts, aircraft parts, chemicals, electronic equipment, fabricated metals, machinery, and wood and paper products and more.
While Arkansas' economy is diverse, it shines brighter than any Southern state we know in food processing and agribusiness. One of the reasons is the state has water capacities that are off the charts.
In an article written by Sarah Eddington for Insurance Journal, Arkansas' food and agriculture industries were cited as stabilizing forces during the recession. "Arkansas' economy has been less affected by the national recession than most other states because of its concentration of agricultural-based industries," she wrote.
In the article, Archie Flanders, a professor of agricultural economics at the University of Arkansas, said the main reason Arkansas' economy actually grew in the recession was because "Arkansas' economy is not as vulnerable because these (food and fiber production) are basic commodities that people continue to use even as the overall economy may decline."
Tyson Foods, ConAgra, Riceland Foods, McKee Foods, Smithfield, Nestle, Unilever, Land O' Frost, Frito-Lay, Butterball, and others have huge operations in Arkansas.
Everyone but the Dish TV guy
Welspun Corp., Ltd. (WCL), the flagship company of Welspun Group, is regarded by many as the fastest growing multinational manufacturer based in India. We all know of the massive investments made by the Japanese and Germans in the South over the last four decades. And over the past 15 years, the Koreans have shown their appreciation for what the American South offers, which is a low-cost, highly productive, business-friendly environment for foreign direct investment.
Companies in India and China are just now discovering what the South offers to industry. In 2007, India-based Welspun discovered Arkansas and Little Rock.
Rajesh Chokhani, Vice President of Commercial and Business Development for Welspun, checked out locations all across the U.S. for the nearly $300 million pipe plant that ended up locating at the Port of Little Rock.
"Little Rock and the state have a magnificent economic development team," Chokhani said. "Arkansas is very lucky to have the team it has today. Gov. Mike Beebe is so pro-business and so pro-job creation. The warmth and talent of the people here is amazing. That helps so much in the site selection process for a business like us."
I asked Rajesh about the site selection process Welspun underwent before it chose Little Rock in 2007 for its large diameter pipe plant. Pipes made by Welspun have been used by all of the oil and gas giants and some of the projects include the world's deepest pipeline (Gulf of Mexico), the highest pipeline (Peru), the longest pipeline (Canada to U.S.) and the heaviest pipeline (Persian Gulf).
"We looked all over the U.S.," Rajesh said. "The Arkansas team met with me and presented what they could do for us and it was exactly what we wanted. We wanted to finish our green field project that everyone said would take 30 months, in 18 months. We did it and opened in April 2009."
Rajesh also said that Arkansas knows how to bring in large industrial investments. "For example, in one day I met with the governor, the mayor, the power company, the water company, the Chamber, the state economic development group, the air permitting department, a few construction companies and some engineers; all in one day. The only person that didn't show up to meet with me that day was the Dish TV guy," Rajesh said.
It's clear to me after my visits to the state in the summer quarter that Arkansas is real; it's creative, humble and hard working. It puts worker training and retention at the top of the list, as opposed to concentrating on the latest and greatest bubble.
Kirkley Thomas of the Electric Cooperatives of Arkansas sums the state up best: "For many years Arkansas has battled an image or perception problem, but those days are over. There's a spirit of confidence in this state that permeates from the Governor on down to the local economic developer level. We feel we can compete with any region of the U.S. as well as globally, and we have."