Two reports commissioned by the Arkansas Legislature on a plan to issue state general obligation bonds for a steel mill in the state's northeast raise questions about the project's long-term economic benefits to the state.
Gov. Mike Beebe asked lawmakers for $125 million of economic development bonds for a proposed $1.1 billion steel mill at Osceola. Beebe said the mill will provide 525 permanent jobs with an average compensation of $75,000 a year and up to 2,000 construction jobs.
The $125 million of bond proceeds would provide a $50 million, five-year loan to the steelmaker, $50 million for site preparation, $20 million for subsurface pilings to stabilize the site along the Mississippi River, and $5 million of issuance costs.
The report from HIS Global Insight said the Arkansas Economic Development Commission may have been over-optimistic in its initial projections of the project's economic benefits.
The state agency said the Big River Steel project would provide benefits between $50 million and $54 million. Modest net economic benefits are likely if the mill operates at its projected levels of employment and production, the IHS analysis said, but it is not sure those assumptions are valid.
"There is at least some chance that the costs could exceed benefits if these operating criteria are unmet and other uncertainties emerge," the report said.
In a separate analysis to the Legislature, Regional Economic Models Inc. said the steel mill would stimulate the area's economy but its effect on state finances would be mixed.
"It is up to the state to determine if the positive economic impact is worth some of the fiscal downsides of the project, given uncertainties about the firm's viability as a private enterprise and how exactly it will claim (state tax) credits," the economic consulting firm said.
There are risks as well as benefits associated with the steel mill project, said Grant Tennille, executive director for the Economic Development Commission.
"We have worked throughout the past year to understand and mitigate those risks," he said. "As IHS points out, our benefit analysis is dependent on Big River Steel performing as promised."
The Commission's cost-benefit report will be delivered to the Legislature this week.