Issue 3 won’t benefit Arkansans, says economic think tank 

Presented to Arkansans as an economic development tool that will put the state on equal footing with its neighbors, Issue 3 is actually an “outmoded and disproven model of economic development” that allows politicians to pretend to be “doing something” about the economy rather than focusing on issues that actually matter. 

That’s according to John C. Mozena at The Reason Foundation, a libertarian-leaning economic and policy think tank. In a piece published Oct. 9, Mozena called Arkansas’ Issue 3 “fatally flawed.” 

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 falling into the same trap of “smokestack chasing” — that is, where local officials prioritize attracting large, headline-grabbing factories and corporate headquarters — Mozena argued Arkansas should “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.”

We now add Mozena’s voice to the rising din of debate over a complex proposal state lawmakers are pitching to voters on the Nov. 3 ballot. Supporters say Arkansas must pass Issue 3 to launch new businesses, revitalize abandoned buildings and grow the economy. Detractors say Issue 3 is little more than a new vehicle for corruption and corporate welfare.

Structural issues

Issue 3, otherwise known as the “Arkansas Create Economic Development Districts Amendment,” would allow the Legislature to create economic development districts in which unelected boards would exercise powers normally reserved for mayors, city councils, quorum courts and county judges. It is presented to voters as a “Tax Increment Financing” (TIF) proposal, which is an economic-development model in which a baseline amount of taxes goes to the state (or subdivision thereof) and incremental increases in taxes collected are used to fund grants, bond debt, loans or infrastructure improvements.

Modena warns, however, that Issue 3 on the Arkansas ballot explicitly allows the unelected boards overseeing an economic development area to reduce or eliminate all property, sales and use taxes within the district, potentially leaving entities dependent on that revenue high and dry. The Arkansas Legislature would have to pass another law requiring baseline tax amounts to still be collected in these areas. But the most recent attempt by the Legislature to actually pass a bill that contained those minimal guardrails failed.

Mozena also cautioned against the expansive power of the unelected boards that would be overseeing the districts. He says the boards’ powers go beyond setting tax rates, as the boards are seen as central economic planning authorities with the power to do pretty much anything that comports with their economic development plan, despite there being “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.”

Lack of results

Beyond just these structural concerns, Mozena also points out that these economic development zones historically have failed to deliver on their promises of prosperity and growth. A big reason for that, he wrote, is that tax incentives are not really a driver for companies in determining where to build or expand:

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.

Economic development zones are outdated, Mozena says, a relic of a pre-information age economy. To put a finer point on it, Mozena wrote, if tax incentives were the be-all, end-all in location decisions for business, the 41 different current and former tax incentives already available to businesses in the state should have already accomplished much of what Issue 3 seeks to do. After all, Arkansas abated nearly $22 million for businesses for economic development purposes in 2025 alone.

Potential for corruption

Issue 3 fails to “account for the large and growing body of evidence against giving unelected authorities power over public funds in the pursuit of economic prosperity,” Mozena warned. Unchecked by open meetings laws and free to sign NDAs without limit, the unelected, largely opaque boards may lack accountability. 

Mozena does not pull any punches in his summation of Issue 3:

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.

Rather than attempt to “subsidize their way to prosperity,” Arkansas and other states might adopt tax, education and other policies that make them attractive to anyone wanting to start a business, “rather than favoring a chosen few,” Modena said.