Arkansas Issue 3 Proposes Tax Incentives to Drive Economic Growth

Arkansas Voters Face Choice on Issue 3 Economic Development Districts

Arkansas voters heading to the polls this midterm season are weighing a constitutional amendment that could fundamentally shift how the state pursues business investment. Issue 3, which appears on the ballot this November, proposes the creation of economic development districts across the state, granting municipalities the ability to offer tax incentives that have previously been unavailable under the Arkansas Constitution.

The measure is positioned by its supporters as a necessary evolution for a state that has struggled to compete with its neighbors for retail and housing development. According to a report by KATV, the discrepancy in development potential is visible at the state line, where Texarkana, Arkansas, operates under different tax constraints than its counterpart in Texas. Proponents argue this gap has cost the state billions in potential investment over the last two decades.

🚨 Part 2 — 5 things you need to know about Issue 3 before you head to the polls in November. 🗳️ Arkansas is the last state in America to default on its bonds. Issue 3 could set us up to do it again. Here's what the ballot title doesn't tell you: 1️⃣ Debt without your vote. EDD… pic.twitter.com/mbtwViRTY5

— https://x.com/ConduitNews/status/2104722033862967598

The Argument for Competitive Incentives

For those in the real estate and development sectors, the current constitutional limitations are a primary hurdle. Cliff McKinney, an attorney at the Quattlebaum, Grooms & Tull law firm, notes that the state has lost out on thousands of jobs simply because it lacks the toolkit to match the incentives offered by other states.

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“The state as a whole just keeps losing project after project. I mean, just in my 20 plus years of practicing real estate law, I’ve seen literally billions of dollars of investment in thousands of jobs bypass the state because other states offer incentives,” McKinney said.

The goal of the amendment is to unlock the potential of underutilized land. Kyle Leyenberger, executive director of the Downtown Little Rock Partnership, emphasizes that the state currently lacks effective mechanisms to turn vacant urban spaces into productive housing or retail assets. Without the ability to offer competitive tax credits, developers often look elsewhere, leaving parking lots and vacant towers in the heart of the capital city.

Addressing Public School Funding Concerns

A central point of contention for voters is the impact of Issue 3 on public school funding. Because the amendment would exempt businesses within these new economic development districts from property taxes, critics worry about a potential decline in revenue for essential public services.

Supporters, including McKinney, argue that the legislation is designed to ensure school districts remain whole. The plan involves a mandatory “property charge” for businesses within these districts, intended to replace the tax revenue that would have otherwise been collected. Proponents point to a potential $150 million shopping center project in Bryant as a case study. Currently, the land generates $97 in annual property tax for the Bryant School District. Under a proposed memorandum of understanding, the developer would pay a property charge equivalent to 50% of the tax revenue the project would generate, which supporters estimate would provide over $600,000 to the local school district.

However, a key detail remains: schools would not be guaranteed any growth-related revenue from these districts. Any additional funds would be subject to private negotiations between district administrators and the developers.

Arkansas Issue 3 Proposes Tax Incentives to Drive Economic Growth

The Question of Legislative Oversight

Perhaps the most significant hurdle for voters is the fact that the specific protections for school funding and the oversight mechanisms for district boards are not written directly into the constitutional amendment. Instead, these details reside in draft enabling legislation filed for the 2025 session. If the amendment passes, the specific rules governing these districts could be subject to change by future state legislatures.

When asked why these safeguards were left out of the constitutional text, McKinney explained that adding the full scope of the legislation would make the amendment excessively long and rigid. He argued that the legislature needs the flexibility to adapt the structure of these boards as they see more data on how the districts function in practice.

For some Arkansans, the proposal remains a difficult sell. The term “corporate welfare” has been used by critics who are wary of providing tax breaks to private entities. Supporters acknowledge this sentiment but argue that the alternative is a continued loss of growth. As McKinney put it, while some may dislike the concept of incentives, the current reality of regional competition makes them a necessity for maintaining economic viability.