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Thursday, March 21, 2013

Nucor steps up opposition to steel mill subsidies UPDATE

Posted By on Thu, Mar 21, 2013 at 8:22 AM

WINNER: John Correnti, former Nucor exec who leads new steel mill startup, would be big winner under state subsidy plan. A competitor asks why.
  • WINNER: John Correnti, former Nucor exec who leads new steel mill startup, would be big winner under state subsidy plan. A competitor asks why.
Nucor, the big steel producer with a mill in Mississippi County, is increasing its attack on the state proposal to give tens of millions in subsidies to a startup competitor run by a former Nucor executive.

Roby Brock at Talk Business has a full report on the Nucor talking points, going out to legislators. It includes a warning that the state subsidies could contribute to market conditions that will force Nucor to pare its Arkansas jobs.

This has always been the core problem with corporate welfare. One player's gain is another player's loss, one way or the other. If the Big River Steel proposal is solid, why can't it make it on its own, in the free market, without taxpayer subsidy? (The standing state answer is that another state will get the jobs if Arkansas taxpayers don't pay tribute.) Still, is it fair for taxpayers to subsidize one business at the expense of another? Nucor's memo says, in part:

Help us understand how you can be backing a competitor when we have been in Arkansas for 25 years, have poured $2B of direct and indirect taxes in the state treasury, have brought many customers and corresponding manufacturing jobs to Mississippi County, and have been a good corporate citizen to the state and to northeast Arkansas.

Help us understand why the state believes this is such a good investment when the industry is operating at 70 to 75%, Nucor Steel Arkansas hasn’t run full since September, 2008, Nucor Steel Arkansas didn’t produce 600,000 tons last year due to lack of orders, and the BRS financial assumptions are more than questionable. If this is such a good deal, with their overstated rate of return, why aren’t steel mills popping up all over the place?

By voting to subsidize BRS ($400,000+/job), you ARE voting against jobs. You are voting against high paying jobs that have been in the area for 25 years. As stated earlier, having 3 mills so close together will drive up the costs for all mills. At some point, orders, tons and people will flow to where they can most profitably be produced. In Nucor’s case, that will be one of our 3 sheet mills in Indiana, Alabama or South Carolina.

We don’t believe it makes political sense for the state to attempt to pick winners and losers and putting existing successful industries in jeopardy by giving unique advantages to their competitors. Do other established businesses need to worry about the state subsidizing their competitors?

The state, however, picks winners and losers all the time. The Republican legislature is poised to designate the wealthy as the big winner in the tax cut derby. Those sorry takers who are the working poor will be losers, both through minimal tax cuts and the certain decline in public services (particularly in vital higher education) that will have to follow.

UPDATE: Roby Brock of Talk Business is reporting additionally on the new report by legislative consultants on the deal. They say the market can absorb additional steel capacity, though the state perhaps has overestimated the long-term economic benefits of Big River Steel. More here from Arkansas Business.

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