The super project tab — $9 million a year | Arkansas Blog

Tuesday, January 29, 2013

The super project tab — $9 million a year

Posted By on Tue, Jan 29, 2013 at 2:31 PM

We know the state has committed to at least $75 million in direct support and fees for a proposed steel mill in Mississippi County and a $50 million loan, all to be paid with a $125 million state bond issue backed by general revenues.

So the critical question, seems to me, is what that will cost the state budget annually in bond payments. House Speaker Davy Carter told David Ramsey that he understood the bill would be roughly $9 million a year for 20 years. Starting in the third year, this would in theory be offset by repayments from Big River on the $50 million loan (the state will not make them make payments on the interest or principal for the first two years). Thus, starting in year 3, assuming Big River does not default, the legislature would only have to contribute roughly $5 million per year. This puts the total cost at around $108 million over the course of 20 years. If Big River takes advantage of a discount to repay its loan, that would allow the state to apply that bulk sum to the principal on the bonds, marginally reducing the annual payments. Correnti struck a similar deal in Mississippi and repaid the full loan after a year. However, if Big River defaults, the state would be on the hook for approximately $180 million over the course of 20 years.

Carter also said:

* Legislators have requested independent third-party study on economic analysis. No cost figure on how much they will spend on consultant at this time. "We will do ample due diligence of our own. That's our responsibility and we're not taking it lightly."

* His understanding is 20-day clock for legislative approval begins to run once recommendation is physically submitted to speaker and senate pro tem's office...probably in a week or two

* He's excited about opportunity for state; said there was a "heavy responsibility" for legislature to do due diligence properly "and make sure we spend taxpayers money responsibly."

* "This will come down to balance between—does it make economic sense to sell the bonds and to take on that responsibility? That's the due diligence that we will go through. It's a two-step process. First we have to determine whether it's a viable, productive long-term business that's going to be successful. Step two, which is a different analysis, is to determine if it makes economic sense for the state to get involved in the ways that have been requested. This is inning 2 of a 9-inning baseball game."

* "I think everybody today is excited about the announcement, excited about the long-term possibilities, excited about the location and hopefully being a trigger to some economic activity in that area of the state. As of today, hard not to be excited about it....again that's a separate issue from whether it makes economic sense for us to get involved in the ways we've been requested to."

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