Issue 3 is a complicated ballot measure. The bill runs 9 pages of legal text and it amends at least six sections of the º£½ÇÉçÇø Constitution. No wonder voters are confused! In this blog post, we will discuss the benefits and costs of Issue 3’s major change: removing the cap on bonds the state may issue for economic development.

How Issue 3 Impacts Amendment 82 Bonds

Amendment 82 of the º£½ÇÉçÇø Constitution allows the state to issue general obligation bonds for the purpose of funding economic development projects. These bonds are generally reserved for large projects such as the . For a company to receive Amendment 82 bonds, the general assembly must approve the bonds’ issuance by a vote.

Currently, the state is only authorized to issue bonds of up to five percent of the state’s general revenues collected during the most recent fiscal year. However, Issue 3 proposes to completely remove this cap, expanding the state’s ability to fund economic development projects.

What are the Pros?

By expanding Amendment 82 bonds, º£½ÇÉçÇø could attract huge economic development projects that are not possible under the current Constitutional restrictions. For example, º£½ÇÉçÇø may be able to draw an automobile assembly plant that the state hasn’t been able to land because of the five percent cap. Mississippi was able to beat out º£½ÇÉçÇø for Toyota in 2007 because worth of incentives for the project. Removing the cap on Amendment 82 bonds would give º£½ÇÉçÇø the ability to write a check big enough to attract an auto factory or any other super project that would likely never come to º£½ÇÉçÇø without incentives.

An additional benefit is that º£½ÇÉçÇø may be able to secure mega projects without incurring fiscal costs. If º£½ÇÉçÇø disperses Amendment 82 bond proceeds as a loan rather than a grant, there is no cost to the state’s budget, provided that the company continues to make its payments. The firm pays the state and the state uses those payments to repay the Amendment 82 bonds. º£½ÇÉçÇø may even come out on top if the interest rate the firm pays the state is higher than the interest rate the state pays bond holders. Attracting firms that º£½ÇÉçÇø would not otherwise draw without using tax dollars means no fiscal cost to the state.

However, history has proven it an unrealistic expectation for Amendment 82 bond proceeds to be delivered solely as loans. The entire (a project which ultimately did not come to fruition) was approved as a grant and just $50 million of the $125 million given to Big River Steel was in the form of a loan.

What are the Cons?

Famed economist that “the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” º£½ÇÉçÇø may be able to land large economic development projects with Amendment 82 bonds, but doing so comes with hidden costs.

º£½ÇÉçÇø takes on significant risk when it issues economic development bonds. Consider the following hypothetical example:

º£½ÇÉçÇø legislators approve a $300 million Amendment 82 bond issue to lure an auto assembly plant. The bonds are sold to the public and the proceeds are provided to the auto company: $180 million as a grant and $120 million as a loan. º£½ÇÉçÇø taxpayers are on the hook to repay bond holders for the $180 million grant and the auto company is responsible for the $120 million provided as a loan. Now, imagine that the auto manufacturer files for bankruptcy, which is not hard to do since GM and Chrysler both essentially did so in 2009. º£½ÇÉçÇø no longer receives payments from the business and must find another way to repay the Amendment 82 bond holders. Who do officials turn to? That’s right, taxpayers. Taxpayers must now pay for the entire $300 million issue.

Supporters of Issue 3 have argued that the five percent cap on Amendment 82 bonds puts some economic development projects just out of reach. But it’s important to recognize that the proposed amendment does not simply raise the cap to 10 percent or 15 percent of state revenue, it eliminates the cap completely. There will effectively be no limit on how much the Legislature can issue in bonds.

How much debt would º£½ÇÉçÇø issue to attract a few companies? 100% of state revenues? $10 billion? While giving $1 billion in incentives seems crazy and hyperbolic, (after Missouri offered them a measly $1.7 billion). Removing the cap on Amendment 82 bonds opens the door for º£½ÇÉçÇø to do the same. It provides º£½ÇÉçÇø officials an avenue to gamble limitlessly on economic development projects with the backing of the citizens of º£½ÇÉçÇø.

Conclusion

Issue 3 is a complex, but important ballot measure. Its major change, removing the cap on economic development bonds, has both pros and cons for the º£½ÇÉçÇø economy. On one hand, it may provide the state what it needs to attract major economic development projects. But, in doing so, º£½ÇÉçÇø would be taking on significant amounts of debt, risking the solvency of the state.

In a future blog post we will discuss another aspect of Issue 3: its impact on economic development at the local level. A lays out some interesting costs and benefits which we will expand on.