Voters in Arkansas are being asked to approve a constitutional amendment that would authorize powerful and unaccountable economic development districts and vaguely defined corporate subsidy programs, opening the door to long-term fiscal instability, public corruption, and other harmful outcomes. With this proposal, Arkansas is doubling down on an outmoded and disproven model of economic development that tries to overcome broad business climate challenges through targeted subsidies to a few fortunate or well-connected companies.
This model, of course, does not work. After more than three decades of increasingly large and complex economic development subsidy models deployed across the country, the real-world evidence is clear that state or local governments cannot subsidize their way to prosperity. The simplest way to recognize this in action is that places that hand out more in corporate subsidies end up no better off by any meaningful measure of economic growth than those that don’t.
Rather than engaging in what could reasonably be described as corporate welfare, leaders in Arkansas—or any other state—would do better to focus on broad-based policy reforms in areas such as taxation, regulation, land use, infrastructure, and workforce development that are of critical importance to all businesses, not just a favored few.
Proposal overview
The “Arkansas Create Economic Development Districts Amendment” on the ballot as “Issue 3” in November was created by Senate Joint Resolution 15, which passed the legislature by a wide bipartisan margin. If approved, it would allow the legislature to create a class of economic development districts in which unelected, poorly accountable boards would exercise powers normally reserved to mayors, city councils, and other elected officials. It would also allow the legislature to create corporate subsidy programs that are specifically exempted from the Arkansas Constitution’s preexisting fiscal guardrails.
The ballot measure is described as “concerning economic development in the State of Arkansas, and authorizing the General Assembly to provide for the creation of economic development districts within cities, counties or cooperative areas to promote economic development within the economic development district.” However, the actual text of the amendment being approved by voters contains radical departures from the state’s long-time constitutional and fiscal norms, with perhaps the most radical provision being, “Property located within an economic development district created by the General Assembly shall be exempt from taxation except for taxes, assessments, or other charges levied by the economic development district of which the property is a part.”
Supporters of the measure have introduced enabling legislation that would constrain that broad constitutional reassignment of taxation power. The proposed Arkansas Economic Development District Act would establish mechanisms to ensure that property and business owners in economic development districts would still effectively pay property, sales and use, and alcohol taxes to the state, county, or municipal governments through a system of “charges” calculated to largely mirror prevailing tax rates.
However, that law did not pass the Arkansas Legislature in its most recent session, putting voters in the position of approving a constitutional amendment that would make some property owners in the state “exempt from taxation” and create potentially massive corporate subsidy grant and loan programs, then trusting legislators to implement effective governance structures after the fact.
An Arkansas Department of Finance and Administration analysis of the amendment also pointed out that the ballot language simply says that property within an economic development district “shall be exempt from taxation,” but does not limit that exemption to ad valorem taxes such as property, sales, and use taxes. This creates the potential for future problems should economic development district boards or property owners use this provision to challenge other tax liabilities.
Complicating matters even further is the very real possibility that even if the legislature does pass the Arkansas Economic Development District Act as proposed, there is no guarantee that any legislative guardrails placed on the broad constitutional language will be upheld by the state’s courts, which have shown themselves willing in recent years to strictly construe constitutional language, even when that conflicts with what the legislators who wrote the amendment may have intended it to mean. In 2007, while ruling against a previous effort to use a constitutional amendment to implement Tax Increment Financing in the state, the Arkansas Supreme Court warned, “We have said that legislative interpretation of constitutional provisions is never binding on the courts, and when there is some doubt or ambiguity in the provision, legislative interpretation is persuasive and only entitled to some consideration.” As detailed below, this is further complicated by amendment language that gives it primacy not just over state law, but over every other part of the Arkansas Constitution.
Economic development policy: Promises versus real-world results
The Economic Development Districts Amendment proposal enjoys wide support in the Arkansas Legislature, passing the state Senate by a 28-6 margin and the House by 74-21. Its support is strongly bipartisan, with 100% of the Democratic minority caucus and 74% of the Republican majority voting in favor.
Supporters of the amendment argue that it would “level the playing field with our neighboring states” by creating the kinds of subsidy programs that exist elsewhere in the country. The Arkansas State Chamber of Commerce supports the amendment, pointing to TIF district programs and other economic development subsidy programs in Texas, Louisiana, Missouri, Tennessee, Oklahoma, Alabama, Kansas, Kentucky, and other states as reasons that Arkansas lags behind many economic growth metrics.
This argument assumes such programs effectively create economic growth. The consensus among economists, however, is that economic development subsidy programs play little role in influencing site selection decisions or long-term economic outcomes, and that the few gains they may rightfully claim come at unsustainable costs to taxpayers and communities.
To be fair, Arkansas is far from alone in this, and despite their outmoded model and the clear real-world evidence against them, incentive programs such as those proposed in Arkansas remain common across the country.
Despite these negative outcomes, one reason for the continued popularity of these programs is that they allow elected officials and other policymakers to be seen to be “doing something” about the economy, freeing them from doing the harder—and potentially more politically costly—work of taking on more fundamental policy reforms in areas such as taxation, fiscal policy, regulatory reform, land use, energy policy, infrastructure financing, and more. (This is why 2022, the first major post-COVID election year, saw governors and mayors announce three times as many billion-dollar subsidy deals as in any other year in modern history as voters pressured them for action amid post-pandemic economic turmoil.)
These types of subsidy programs also tend to suffer from what is known as “smokestack chasing,” where local officials prioritize attracting large, headline-grabbing factories, headquarters, and other megaprojects. As the name suggests, this kind of model is an artifact of an earlier economic era and is becoming increasingly irrelevant today. As renowned urbanist (and prominent economic development subsidy critic) Richard Florida recently explained, “The factors that drive location decisions in a knowledge economy—talent, innovation, and quality of place—are not the ones that incentives were ever designed to address.”
This is one reason the evidence strongly suggests that, in the long term, it would be far more economically beneficial for policymakers in Arkansas and elsewhere to focus on the other end of the corporate spectrum: encouraging entrepreneurship and small business formation through policies that benefit businesses of all sizes.
However, this is not what Arkansas’ proposed programs do. Instead, they largely double down on a strategy of business attraction and high-profile “transformative” megaprojects. While these kinds of deals may generate political benefits, they also come with huge costs, and their long-term results rarely live up to their promises. One study of Michigan’s economic development programs found that subsidy deals that had been big enough to generate front-page headlines in the state’s largest newspaper between 2000 and 2020 had promised more than 123,000 jobs, but that according to the state’s own records only 11,000 jobs were ever actually created—a success rate of just 9%.
In many cases, these deals fell through or evolved because companies changed their plans to meet changing business conditions. It was a real-world demonstration of just how limited state and local government subsidies’ leverage is over corporate decision-making as companies rolled back or canceled construction, hiring, and other plans in Michigan despite having subsidy agreements in hand.
The idea that state and local government subsidies are rarely the deciding factor in corporate site selection is not controversial, even within the site selection industry itself. In the trade magazine Area Development’s most recent annual survey of corporate site selectors, more respondents ranked “incentive competitiveness,” “speed and certainty of incentive approval,” and “availability of tax credits” as “minor considerations” than as “very important factors” to their site selection decisions.
If it isn’t a lack of economic development programs slowing Arkansas’ economic growth compared with its neighbors, then what factors are truly at play? One potential way to consider this issue is that Arkansas ranks just 27th among U.S. states in the Fraser Institute’s respected Economic Freedom index, scoring no higher than 6.4 out of 10 on Fraser’s measurements of labor market freedom, taxes, and government spending thanks to challenges such as the state’s high sales tax burden and proportionally large government workforce. Of its neighbors, Arkansas only ranks better than Louisiana (one spot behind in 28th place) and 39th-place Mississippi, and is far behind 2nd-place Tennessee, 4th-place Texas, 11th-place Oklahoma, 14th-place Kansas and 22nd-place Missouri.
Even if we accept supporters’ arguments that subsidy programs are critical to economic growth, Arkansas’ economic development agencies are far from limited in their existing toolsets, with the state’s Department of Finance and Administration listing 41 different current or former “business incentives and credits” available to companies doing business in the state. While some of these programs are highly specific—few businesses will be able to take advantage of the state’s $15 income tax credit per ton of rice straw on purchases of more than 500 tons for ethanol or energy production—many are available to businesses simply building, expanding, or hiring in the state.
The price tag for these existing programs is not trivial. In 2025, Arkansas’ annual financial report disclosed $21.9 million of tax abatements for economic development purposes, including $2.9 million in film tax credits and $2.1 million in R&D tax credits. (This figure does not include a wide variety of other economic development costs to taxpayers such as grants, bond service payments, loans, or site preparation expenses.)
Additionally, any consideration of new subsidy programs must account for the potential to impose significant fiscal burdens long after they’re gone. Consider the former InvestArk sales and use tax credit program, which offered companies already doing business in Arkansas credits of up to 50% of their sales and use tax liability for investing $5 million or more in new construction, expansion, or modernization within the state. In Arkansas’ 2025 annual fiscal report, InvestArk tax credits accounted for $14 million in tax abatements, more than all other economic development programs combined, despite the program having sunset in 2017. In the eight years since the program’s sunset, InvestArk participant businesses have redeemed $241,379,000 in tax credits.
Arkansas’ history of economic development constitutional amendments
Like most states, Arkansas’ Constitution has a strong array of longstanding restrictions on the power of state or local governments to favor some property owners over others, or to use the tax code to engage in economic central planning. Some of these limitations include:
[T]he General Assembly may delegate the taxing power, with the necessary restriction, to the State’s subordinate political and municipal corporations, to the extent of providing for their existence, maintenance and well being, but no further. – Article 2, § 23
The power to tax corporations and corporate property, shall not be surrendered or suspended by any contract or grant to which the State may be a party. – Article 16, § 7
All real and tangible personal property subject to taxation shall be taxed according to its value, that value to be ascertained in such manner as the General Assembly shall direct, making the same equal and uniform throughout the State. – Article 16, § 5(a)
The following property shall be exempt from taxation: public property used exclusively for public purposes; churches used as such; cemeteries used exclusively as such; school buildings and apparatus; libraries and grounds used exclusively for school purposes; and buildings and grounds and materials used exclusively for public charity. – Article 16, § 5(b)
All laws exempting property from taxation, other than as provided in this Constitution shall be void. – Article 16, § 6
No county, city, town or other municipal corporation, shall become a stockholder in any company, association, or corporation; or obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual. – Article 12, § 5.
However, the drafters of the Arkansas Create Economic Development Districts Amendment functionally repeal those and other provisions of the state constitution where economic development is concerned by giving it an effective super-constitutional status over every other provision of the constitution with clauses such as:
“Any provision of this Constitution, including without limitation amendments to this Constitution, that conflicts with or is in any way inconsistent with this amendment is repealed or deemed modified to give precedence to this amendment.”
“This amendment supersedes all previous constitutional provisions, amendments, laws, or judicial interpretations that conflict with this amendment’s terms.”
“If this amendment conflicts with any existing constitutional provision, amendment, law, or judicial interpretation, this amendment shall prevail and be given full force and effect.”
It also weakens the Arkansas Constitution’s existing fiscal guardrails through the simple mechanism of redefining the term “debt” for economic development districts by declaring that “A program created or a loan or grant made by an economic development district that is secured by a pledge of ad valorem taxes or financed by the issuance of any bonds or other obligations payable from ad valorem taxes of the economic development district does not constitute or create a debt for the purpose of any provision of this Constitution.”
The amendment’s authorization of new economic development grant and loan programs also effectively repeals preexisting constitutional safeguards against using taxpayer funds for private purposes at every level of government within the state with its provision that, “Notwithstanding any other provision of the Arkansas Constitution, the General Assembly may provide for the creation of programs and the making of loans and grants of public money” for a broad array of purposes that include “development and diversification of the economy,” “elimination and prevention of unemployment and underemployment,” “development or improvement of transportation or commerce,” and “development or improvement of real estate…that contributes to economic development.”
This effective repeal of the Arkansas Constitution’s longstanding fiscal guardrails, so far as economic development is concerned, ends a string of constitutional amendments in recent decades that have eroded previously rigid constitutional limitations in pursuit of economic growth through central government economic planning.
Amendment 78 in 2000 created a tax increment financing (TIF) mechanism in the form of “redevelopment districts,” but the state’s Supreme Court ruled that it conflicted with the state’s constitutional school funding structures and limited what property taxes TIF districts could capture.
In 2004, Arkansas voters approved Amendment 82, which allowed the state to issue economic development bonds in amounts up to 5% of the state’s annual general revenues.
Amendment 97 removed that 5% cap in 2016 and expanded the power of counties and municipalities to issue economic development bonds. The amendment also effectively repealed the Arkansas Constitution’s Article 12, § 5 provision that a county or municipality was not allowed to “obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual” by creating a broad “economic development” exception.
These previous efforts to weaken Arkansas’ longtime fiscal conservatism and separation of public and private funds have not delivered on their supporters’ promises. There is no reason to believe that the Arkansas Create Economic Development Districts Amendment will perform any differently, especially given the deep flaws within the proposed structure of the districts it creates.
Challenges with district boards
The Economic Development Districts Amendment is being presented as a “Tax Increment Financing” proposal, but that is not what the constitutional amendment actually creates. Tax increment financing, or “TIF,” is an economic development model in which taxing authorities set a baseline level of pre-development tax receipts for a particular property, then redirect some or all of future incremental growth in tax receipts from that property to fund grants, loans, bond debt, infrastructure improvements, or other public expenses, while the baseline revenues continue flowing to taxing authorities as before.
TIF districts have a wide array of problems in theory and practice, and a broad academic consensus holds that they generally capture growth that would have happened regardless, or at least incentivize growth in one place at the expense of growth elsewhere. But even setting those serious concerns aside, there are two immediate problems with simply portraying Arkansas’ proposed Economic Development Districts as the kind of TIF districts in operation in every other state but Arizona.
The first, as noted above, is that the actual language of the constitutional amendment before voters does not require districts to operate under the TIF model. Under the plain language of the amended constitution, district boards could dramatically reduce or even eliminate all property, sales, and use tax collections within their borders.
To be fair, the proposed legislation creating the structure for economic development districts did require a TIF-style model in which municipal and county governments would receive the equivalent of baseline tax revenues from districts. The most recent version of the legislation confirms that “All property within an economic development district is exempt from the payment of ad valorem property taxes,” but makes it subject to “property charges” collected by district boards that “shall be collected at the same time and in the same manner as ad valorem property taxes,” and implements a similar structure for sales and use taxes. District boards could also impose their own millage-based “property charges” and percentage-based “sales charges” on local property owners and businesses.
However, there is no guarantee those structures will be in place in whatever legislation is eventually passed into law. There is also no guarantee that those (or other) ex post facto legislative restrictions on a constitutional amendment approved by voters in November’s election would be subject to the interpretation of state courts that have already made it clear that they are not bound by legislative intent when it comes to interpreting constitutional language regarding Arkansas’ economic development programs.
The second major problem with the enabling legislation is the nature of the economic district boards themselves. They would wield potentially immense power within their districts, with each city or county deciding for itself what the “restrictions on the powers of the board of the economic development district” would be.
The proposed power of these district boards goes far beyond setting tax rates. They are envisioned as central economic planning authorities, running their districts in accordance with an economic development plan that “detail[s] the goals, strategies, and initiatives to be undertaken to stimulate economic development within an economic development district.”
Concerningly, there is no requirement that any member of these boards have any qualifications in developing a functional forward-looking central economic plan, a task that has eluded experts throughout history. These boards would have the broad power to favor some businesses over others through their power to “Determine that a venture or facility is beneficial to the economic development district.”
Boards could exercise zoning and land-use planning authority and could make grants or forgivable, no-interest loans to district businesses, waive or reduce utility franchise fees, pay for infrastructure, purchase and sell property, contract with vendors, and issue property and sales tax abatements.
Boards would also be allowed to issue bonds backed by district revenues. While the amendment sets out a mechanism to require voter approval for economic development bonds issued by “a county, municipality, or other political subdivision,” an Arkansas Department of Finance and Administration analysis of the amendment points out that it is unclear whether economic development districts are “political subdivisions” for purposes of that requirement and, therefore, whether any bonds they issue would require voter approval. This creates a plausible situation in which a city or county could find itself responsible for a district’s bond debt, even though the bonds were approved at best only by voters within the district and, at worst, only by the members of the district’s board.
These boards would consist of five to nine members, with the only requirements being that all must live within the city or county that created the district, at least one must be a property or business owner within the district, and at least one must have no ownership interest in any district property or business. All board members would be appointed by the relevant mayor or county judge, subject to confirmation by the local city council or county commission.
While these districts could wield immense power and last up to 30 years before needing reauthorization, creating one would require only a single public hearing and a majority vote by the city council, county commission, or other creating authority.
Whether in Arkansas or anywhere else in America, fundamental government powers such as taxation should be held by elected officials who are directly responsible to voters.
Transparency and potential for corruption
The proposed structure and governance of Arkansas’ economic development districts fail to account for the large and growing body of evidence against giving unelected authorities power over public funds in the pursuit of economic prosperity. Any system that allows decisions on transferring large amounts of public money to private corporations to be made behind closed doors is a breeding ground for public corruption. (In Michigan, a recent string of economic development corruption scandals has led the state’s attorney general to call for the abolishment of the state’s primary economic development agency, the Michigan Economic Development Corporation.)
As legislatively envisioned, Arkansas’ economic development districts could create at least the appearance, if not the reality, of this kind of corruption by giving broad governmental powers to boards of appointed, poorly accountable insiders. This is worsened by loopholes baked into the legislation’s transparency measures, including allowing a district board to go into executive session to avoid open-meeting requirements if there is a confidentiality requirement “under a contract to which the economic development district is a party.” These nondisclosure agreement (NDA) measures are pervasive in the economic development world, and would allow board members to effectively sign away the public’s right to know by entering into an NDA regarding any discussions they would prefer not to have in public. When combined with a broad Freedom of Information Act exemption for records that “would give an advantage to competitors or bidders,” boards would have dangerously broad powers to hide their deliberations from public view.
Conclusion
The Arkansas Create Economic Development Districts Amendment will not create economic growth and prosperity in the state. Its fundamental flaw is its reliance on outmoded, costly, and ineffective central planning-based economic development policy models that have failed time and again across the country.
Beyond those common flaws, Arkansas’ proposed amendment has other specific structural problems that advocate against its implementation, including:
- It asks voters to approve a grant of tremendously broad powers to economic development district boards, without any certainty that any eventual laws passed to structure and restrain those powers will both live up to supporters’ promises and survive review by strict-constructionist courts.
- Its proposed enabling legislation creates an environment in which an appointed board with no meaningful qualifications and deep potential conflicts of interest could be given the power to exercise near-total control over a district, wielding governmental powers such as approving zoning and land use plans, setting taxes, buying and selling property, building infrastructure, making grants and loans to local businesses, issuing bonds and generally micromanaging their district’s economy in accordance with their economic development plan.
- It effectively completes the repeal of the Arkansas Constitution of 1874’s longstanding fiscal protections by exempting anything plausibly described as “economic development” from the constitution’s prohibitions against using taxes for purposes other than public services, mixing business and government, or treating some taxpayers better than others. These restrictions exist for good reason, and eliminating them puts Arkansas’ taxpayers at risk.
Policymakers in Arkansas and across the country must understand that states and cities cannot subsidize their way to prosperity, but must rather do the hard work of implementing free-market, limited-government, and fiscally rigorous policies that make them good places for anyone to start and grow good businesses that create good jobs, rather than favoring a chosen few.
Policies that promote growth and broad-based prosperity include low taxes, high-quality educational options, predictable regulatory environments, fiscally conservative government operations, affordable and reliable energy, functional infrastructure, liberal labor policies, effective public safety, and other factors potential residents or business owners consider. Arkansas has a long way to go on many of these core economic competitiveness best practices, and its leaders would be better off focusing there than on creating a powerful new corporate welfare tool, especially as other states are finally coming to grips with the risks inherent in such programs.
Everyone wants to live in a place with a good quality of life that offers them a real opportunity for growth and prosperity. Whether in Arkansas or anywhere else in America, that goal will not be achieved by ceding government power and taxpayer dollars to corporate welfare cronies.