Consultant Outlines Advantages Of Camden Superproject

May 22, 2015

As part of the review process under Amendment 82, the state’s superproject amendment, lawmakers have received an independent consultant’s analysis of the proposed $87 million Lockheed Martin  Joint Light Tactical Vehicle (JLTV) bond issue that will be at the center of debate in next week’s special session.

Gov. Asa Hutchinson made the official call for legislators to meet in special session beginning Tuesday, May 26 to vote on helping lure the military’s new JLTV production facility to Camden. The new military vehicle will replace the long-running Humvee vehicle.

Legislators will vote on issuing $87 million in bonds to help Lockheed Martin build 55,000 JLTV vehicles in Highland Industrial Park near Camden. Lockheed Martin is competing with Oshkosh and Humvee maker AM General for the lucrative contract that could be as much as $30 billion over the next several decades.

Under the analysis from IHS, the consulting group hired by the legislature’s Bureau of Legislative Research, one of the conclusions of the group was:

“The net economic benefits would be a positive $16.3 million using a discount rate of 3.38%, or the true interest cost of the proposed bond issue. The net economic benefit would be 19% than the npv of the costs, or the annual bond debt service,” IHS said in its report.

Other takeaways from the report included:

  • In our judgment, there is a minimal downside risk to Arkansas several reasons.
  • The nature of the contract under which the DoD will commit to purchasing almost 55,000 JLTVs at an agreed upon price reduces market uncertainty about the level of activity at the Camden plant.
  • Arkansas plans to protect taxpayers by including appropriate claw back provisions in the incentive package if LM does not meet the specified levels of production and employment.

By contrast, we find that there is a lot potential upside such that the net economic benefits are more likely to exceed our estimate than be smaller because:

  • It is likely that prices paid by DoD per JLTV will be higher than the base figure for the reasons discussed above.
  • The number of vehicles produced by the Camden facility over the analysis period is likely to exceed the contract amount because of sales of JLTVs to other countries, and from higher domestic demand to replace aging Humvees.
  • Additional activities will be performed at the Camden plant such as the reset work noted above, which in turn would increase the level of direct purchases, and possibly employment generated by the plant.

The report concludes:

While there is always some risk when a state makes a long-term commitment to provide up-front economic incentives that are repaid indirectly over time by the hoped for increases in statewide economic activity, IHS’ conclusion is the proposed economic incentive package makes economic sense for the State of Arkansas, and that it is a prudent, responsible use of taxpayer resources. Finally, we note that a key part of the Arkansas’s ability to maximize the potential economic benefits of the JLTV facility will be its ability to provide targeted job training programs to ensure that supply of skilled workers in Calhoun and Ouachita counties is large enough to meet the projected demand. The challenge of meeting the demand for qualified technical workers in a rural part of the state would be much greater if LM had not already been successfully operating its Camden plant for many years,