Arkansas Inc. Podcast: 2025 Arkansas Legislative Session Review

In this episode of the Arkansas Inc. Podcast, Secretary of Commerce Hugh McDonald and AEDC Executive Director Clint O'Neal discuss the 2025 Arkansas legislative session, the IMPACT legislative package, and the effect this will have on economic development in the Natural State.

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TRANSCRIPT

I'm Hugh McDonald, Secretary of Commerce for the State of Arkansas.

I'm Clint O’Neal, Executive Director of AEDC, and you are listening to the Arkansas Inc. podcast. Welcome to the Arkansas Inc. Podcast.

My name is Clark Cogbill. I serve as Director of Marketing and Communications for the Arkansas Department of Commerce.

Last month, the Arkansas Legislative Regular Session of the 95th General Assembly adjourned. The session was a particularly productive one for economic development in Arkansas, and this year's session, legislators passed a group of bills that could prove to be some of the most significant economic development legislation in a quarter century. The legislation included:

●        New incentives for data centers and lithium projects.

●        The creation of economic development districts.

●        Much-needed regulatory updates that will enable energy providers to keep up with the dramatic growth in energy demand.

●        And more.

At the Department of Commerce, we came up with a name for this package of legislation, IMPACT, which stands for Improving Markets, Promoting Arkansas Commerce and Trade.

Today, my guests on the Arkansas Inc. Podcast are two people who were deeply involved in this legislation, from origination to collaborating with legislators throughout the session and helping to secure the votes needed to pass the bills. And they are uniquely qualified to explain the new legislation and the potential impact for Arkansans and the companies looking to expand here. I'm excited to be joined today by Arkansas Secretary of Commerce Hugh McDonald and Arkansas Economic Development Commission Executive Director Clint O’Neal. Hugh and Clint, welcome back to the podcast.

Hey, Clark. Good to be here.

Clint, lately you've been the host, but now you're a guest.

Happy to be here as a guest. Either way, we've got a lot to talk about. A lot of legislation was passed. Before we get into what was passed and what the bills mean, I thought it would be interesting to just talk a little bit of inside baseball about how bills really become laws, how they are originated, how you find sponsors, get them introduced, and through committee, eventually getting passed into law. Clint, it's not as simple as we learned watching Schoolhouse Rock as a kid when they sang, I'm just a bill. Can you give us an inside look into the process?

Well, thanks, Clark. No, it's not that simple, but Schoolhouse Rock was helpful. I mean, as an economic development professional, this is not exactly something that I had a whole lot of experience in until recently. And so just working hand-in-hand with the governor's office, with the legislature, it's been a very rewarding experience, great session. But for us, it started several months ago. In Arkansas, we have a general session every two years and then on the off year, a fiscal session. So about a year ago, leading up to this year's general session, Secretary McDonald and I put together an incentives working group, economic development professionals from around the state, those that work in small business and entrepreneurship development, just leaders that could help guide the conversation. We had a group of 15 or so that we asked Jack Thomas and Bentley Story to co-lead. They did a great job. We broke that down into three subcommittees: traditional Economic Development; Small Business and Entrepreneurship Development; and Site Development.

And from there, we really started generating ideas on economic development legislation that led to a lot of the bills that became acts signed by Governor Sanders not too long ago. And you mentioned Jack Thomas and Bentley Story, both alums of AEDC, Jack Thomas now with the Little Rock Chamber and Bentley with Entergy Arkansas and alum of the Arkansas Inc. Podcast.

That's right. That's right. We should have them back too.

Hugh, what would you add to that just on the process, you know, in listening to the updates every week, it's definitely apparent that there's only so many bills that can be dealt with and so much legislation that can get passed. And so what do you do to make sure that our legislation gets through?

Well, that's a good question, Clark. I would go back, really leverage off of what Clint talked about, that it's a team sport. It's a team effort, a statewide effort. It's not an idea by Hugh. It's not an idea just by Clint. Have to work together as a team. You know, and getting involved from day one, the stakeholders, the stakeholders who are going to be impacted by this. You know, that's what we did with the incentive working groups that was put together for the economic development incentives. But in addition to the economic development incentives within commerce, same thing. You know, you work together as a team. We had important legislation that impacted economic development coming out of ADFA, coming out of the securities department, coming out of Arkansas Workforce Connections. They're all also coming out of our unemployment insurance group, which we now call reemployment. But it's all tied together and everybody works as a team. And obviously, you know, you want to get the governor's office supportive of that, of which the governor's office was very supportive of the legislative impact legislation. But they help also with advising us and with their relationships, as well as our own relationships of who the sponsors would be, could be. And, you know, again, like so many things in life, the relationships one has, whether they're personal, business, whatever, are really important throughout the process.

You know, the team did a tremendous job. You know, the team within commerce, the team within AEDC, the team within all across the state from an economic development perspective. One person in particular, Jake Winley, who is our legislative affairs person. You know, he was our point guy from day one and really, really helped us coordinate it from a centralized focus. Jake was pretty much camped out at the Capitol throughout the session. As well as Allison Hatfield, my chief of staff.

Yes. Thank you for that perspective. Let's start with one of the most significant and most talked about bills, the Generating Arkansas Jobs Act of 2025. And this had to do with reforms for the energy sector. Hugh, as many people know, you served as CEO of Entergy Arkansas before being appointed by Governor Sanders as Secretary of Commerce. You have a really unique perspective on this one. Set the stage for why this bill was needed and how this bill came together. And as a lot of people know, energy and the growing need for energy is one of the hottest issues in economic development today. So can you just kind of give us the background?

Yeah, I would be happy to, Clark. It's interesting. Two and a half years ago when I started this role, the number one issue we heard from companies was we got to have workforce. Workforce, workforce, workforce was the big challenge. And the governor will tell you this as well. In all of our meetings that we've had today, the number one issue is do you have the power? Where's the power coming from? And so this bill directly addressed that particular issue.

And when I retired nine years ago from Entergy, we had a generation portfolio that was prepared for the future. But with the advent of artificial intelligence, all the data centers, there is a projection of energy usage that was on no one's radar screen just probably four years ago. And so we've seen a tremendous demand increase in that industry.

And I would also tell you that kind of from where the economic development that I've been involved in in this state for the last 25 years has primarily been, I mean, the energy needs for all those new projects, whether it was LM Windfiber, you know, the windmills 15 years ago or Big River Steel, that utilized the existing surplus capacity that whether it was the co-ops, the municipalities, or Entergy, that existing capacity was built in the 70s and 80s. So there was a lot of surplus that we had been using over that period of time. That surplus is pretty much gone now. And plus with the retiring of two large coal plants that are going to be retiring in 2028, end of 2028, and the end of 2030, that's 3,200 megawatts that goes away. So this legislation directly focused on how to speed up that process and allows the utilities to collect their costs when those projects are actually under construction, as opposed to when they're completed, which it'll probably accelerate the process going from 18 months approval to probably six months. And ultimately, allowing the utilities to recover those costs earlier rather than later, that will also save money for customers in the long run. Well, that's great and much needed.

And you and I have talked about it a little bit. We've talked about the end of the surplus. The Arkansas economy has been thriving. We have more manufacturing coming in, and all of that requires energy. But on top of that, you mentioned AI and data centers. I want to tie that to another bill that addresses data center incentives. I was recently at a conference, and I've never thought about energy in these terms, but somebody said, whenever you search Google, it requires energy, some data center somewhere. The fans on a computer wind up requiring energy. When you use ChatGPT or AI, it requires something like 10 times that amount of energy. And as we all know, more and more people are using AI in all sorts of different applications. This, among other things, is driving, Clint, it seems, a lot of demand for data centers across the country. And Arkansas wants to compete.

So another bill addressed data center incentive reforms. Can you talk about what that bill is and what it does? Sure. So we got in the data center game two years ago with a bill that was passed out of the legislative session in 2023. Fast forward two years, and I don't remember all the bill numbers, but I remember this one, House Bill 1444, under the leadership of Representative Aaron Pilkington, a real champion and advocate for this industry, that has been, as I mentioned, really opened the door to creating a pipeline of opportunities for data center projects.

So we've not really done a whole lot of marketing around this. We don't go to data center trade shows. We just made it known that we welcome data centers by the passage of this legislation, now Act 548. And because of this, projects in excess of $100 million, it's basically operating a data center sales tax-free on energy, on equipment, replacement equipment, that paired with having the energy, which is really what gets you in the game. An incentive like this could help you win the game. We are well-prepared to recruit data centers, and we'll have our first few big announcements before the end of the calendar year.

That's very exciting. And you see data centers for a while now being projects that pop up in the pipeline for Arkansas? You know, it's hard to predict the number of these large data centers that will be needed, but as all indications are now, we'll see them for a while. And so, you know, the typical data center project is a very high capital investment project. It is one that obviously requires energy, and they want to be in a community that's going to serve as a great community partner. Not as many jobs as some of the industrial projects, but high-paying jobs. Jobs nonetheless. Good jobs in these communities. And so, you know, a high capital investment project like this is great for communities, even with property tax abatement. It provides a lot of property taxes for the schools, for the cities and counties, good jobs for Arkansas. So it's certainly an industry that's on our radar.

And so, as you said, that was signed as Act 548. Act 1012, another incentive bill for the lithium industry. Hugh, there's been a lot of talk about lithium in the past couple of years in Arkansas, and a lot of it centers around the fact that Arkansas is home to part of the Smackover formation, which has a huge lithium deposit in South Arkansas. A lot of excitement, a lot of potential, but success is not a given. These incentives were a big step. Can you please give us an overview of this bill? Clark, great question. The lithium industry, as we hope, is going to be a huge shot in the arm for the South Arkansas economy. In fact, the entire state's economy when it's up and running. Big news a couple weeks ago, the state Oil and Gas Commission made a decision on the royalty rate of 2.5% for Standard Lithium. So that was a huge regulatory hurdle that is now behind us. Exxon is next up. I believe they've got a June 23rd Oil and Gas Commission hearing scheduled.

So, this incentive was designed to help create sales tax incentives for anybody in the mining and further processing and manufacturing of lithium within the state of Arkansas. The lithium value chain, we've done quite a bit of study on this with the help of Benchmark Minerals, a global mineral consultancy. And what our focus is going to be, certainly in the near term, short term, short term being the next five to ten years probably, is going to be on the upstream and midstream section of the value chain from extracting the mineral, the brine in this case, and smack over formation out of the ground and refining that into a lithium carbonate or lithium hydroxide, which is then sold to other producers who will further refine it to like a cathode, for example.

And that whole business sector we want to further develop in Arkansas, where Arkansas, we believe, can become a lithium hub because the nation actually needs, has a supply shortage in the upstream and midstream end of the value chain. And we still rely on China for the processing of the lithium hydroxide and lithium carbonate. So we want, as a national security issue, we want to be able to secure the supply chain of lithium in this country. And we think Arkansas is in a great position to do that.

Obviously, the market price of lithium is a huge deal, just like the gas price is a huge deal for gas producers. Same thing that they're dealing with. And Standard Lithium and ExxonMobil, we hope, will be in a position to invest billions of dollars to extract the brine from about 8,000 to 10,000 feet below the surface of the earth in South Arkansas and start the refining process here.

And probably a good opportunity to plug the upcoming 2025 Arkansas Lithium Innovation Summit. We had a great event in 2024. Looking forward to an even better event in October in 2025 here in Little Rock. So more to come on that.

Let's shift gears a little bit and talk about, for short, the ADFA bill. ADFA, a division of the Arkansas Department of Commerce. It stands for Arkansas Development Finance Authority. This bill established ADFA as a corporate instrumentality of the state with the purpose of finalizing ADFA's privatization, allowing it to operate independently of the Department of Commerce.

I've heard ADFA President Mark Conant talk about ADFA as kind of operating like a bank. ADFA plays an important role in helping with the financing of projects all over the state, partners closely with AEDC.

Why make ADFA independent? Why shed ADFA from the Department of Commerce? Well, when I asked Mark, I said, Mark, this has been maybe a couple of years ago, what are your big ideas? What can we do that will help change the trajectory of ADFA and also help the state? And like most other states across the country, their ADFA organizations are really not a state agency like we used to be.

And what does that mean? Well, it frees ADFA up from, you know, the policy, personnel policies, procedures, the pay scales, the procurement policies. But most importantly, because they are not a state agency, they will have access to much more capital to build the projects across the state of Arkansas that aren't being built today, like housing projects, which in particular areas of the state, there's a great need for more housing.

And so just as we passed that legislation, the legislature approved it ultimately, but before the bill or before the act was actually went into effect, Mark Conine's phone was ringing off the hook from some of these entities, financial institutions, nonprofit agencies, for example, that used to not want to participate in any of the ADFA projects because they were too close to state government. Now that they are less close, I wouldn't say they're completely independent because the governor still appoints all the board members of ADFA. I'm still a member of the ADFA board, but those entities are, since we are structured now, like I think 43 or 44 other states, there's more separation between ADFA and the state government. Those entities are now willing to do business with ADFA. So it is working exactly like we had hoped. And this will benefit thousands of Arkansans going forward. It hasn't yet become law and it's already starting to work.

Yes, yes. Clint, does this change how AEDC will work with ADFA going forward?

No, you know, Mark Conine would be a great partner, be across the hall. There are several projects that we have ongoing collaboration with from the large ones that request tax-exempt bonds to the small ones that we're doing work in the entrepreneurship field with. So no, we'll have really the same level of collaboration with ADFA.

Clint, Act 882 was the modernization and automation incentives legislation. Can you tell us about that one?

Sure, so I'll take us back to the incentives working group that we had leading up to the session. And as we think about our core customers at AEDC, so we work to serve Arkansans. And the way we do that is by serving communities and businesses. Within businesses, we think about small businesses and entrepreneurs, existing businesses, and recruiting new ones.

So in that middle category, existing businesses, this is our customer base, those that have been investing in Arkansas for quite some time, that have been loyal to the state, hired Arkansans for many years. When it comes time for companies like this to make a big capital investment, and oftentimes they're choosing between investing in their Arkansas facility or another facility out of state. And they may not say upfront, but if you're not investing in one facility, you may be getting ready to close it down in the next five or 10 years. We want to be a destination that incentivizes existing businesses to continue to grow in Arkansas.

And so as there are a lot of companies through modernization, through expansion, looking for large capital investments, we wanted to have a program that would encourage them to do that in Arkansas.

So basic parameters of the program: you can't go down in payroll, but if you're staying the same with payroll or increasing payroll and making a capital investment of $25 million or more, and you're in that position where it hits the sweet spot of the program, it's a discretionary program. Based on what other incentives we might provide, a company could receive up to 5% tax credits on that investment. And that can go to offset sales tax liability or income tax liability.

And not legislation, but two other programs that were affected through the session, the Community Assistance Grant Program and the Arkansas Site Development Program, Clint.

Sure, so these are two that had existed in a form previously, but thanks to the leadership of Governor Sanders and the Arkansas General Assembly, really said these are programs that are going to meet the needs of Arkansans.

And so really excited to roll both of these out in the phases that they're at.

So the Community Assistance Grant Program: $15 million to support communities and nonprofit organizations with an application cycle that is open until July 31st of 2025.

So if you're listening to this podcast before that time period, would encourage you to reach out. We have a special landing page set up with some frequently asked questions with the application. Community projects, everything from renovations to City Hall to local parks to a number of ways to enhance communities and to come alongside them to understand their needs from a bottom-up approach. And then nonprofit organizations that hit the sweet spot of taking care of needs that we care about as a state, alleviating hunger and homelessness, creating safe communities. And so really excited about the great things that the Community Assistance Grant Program is going to do.

On the site development program, this is, again, something that goes back to conversations we've had from the beginning of the Sanders administration. What do we need to do to compete and win in the area of economic development and industrial development? Arkansas, like many states, lacks the inventory of shovel-ready sites that we need to compete. And so we rolled out phase one earlier this year with $10 million in the Arkansas Site Development Program. And in phase two, we'll have $50 million over two years to really make sites more attractive. That's a huge jump. It is. And so when prospects come to town and they start looking at a site, they compare it to sites to other states. We don't want to be in a position to say, we'll get the infrastructure there in time for you to engineer and design your project and start constructing. We want to say, it's here for you right now, and it's better than the competition.

So many exciting changes through the legislation in this package that we've called IMPACT. Probably too much to talk about on today's episode, but I'll just kind of open it up to both of you. What other legislation are you really excited about that passed in this session?

I'll talk about a couple of them. The unemployment insurance adjustment and what that means. Every employer pays an admin fee for unemployment insurance. And with the smart thinking of Chris Rhodes, who runs our unemployment insurance organization, just moving one fee, basically employers pay no more, but there's two buckets of administrative adjustments. And she's much brighter on this than I can explain it. But effectively, we created what we believe is another $5 to $10 million of workforce development funding with no impact to the employers and also no impact to the unemployment insurance trust fund. So really excited about that.

Also, we were able to, within the Department of Office of Skills Development, create a new state office of apprenticeship, which is very exciting. Our state has moved forward by leaps and bounds over the past few years in terms of promoting apprenticeships. And this will further accelerate that process.

Clint, how about you?

Sure. You know, a few more on the economic development side:

We had one around industrial development authorities that will give regions around the state the opportunity to come together, form an IDA where they did not have that opportunity previously, create some financing mechanisms around industrial parks that kind of goes hand in hand with the site development program.

One called the Small Business Innovation Research Reform. So back to the incentives working group, small business and entrepreneurship development subcommittee, a program that the state funds but had certain limitations around lifetime opportunities to apply, the applicability of the grant. So it broadens that. It gives us the opportunity to help more entrepreneurs.

We had one called Corporate Headquarters Relocation that whenever we have the opportunity to work a corporate headquarter relocation project in the state for the four tiers broken down by the tier system that we have among the 75 counties from 150 to 300 jobs. If a corporate headquarter relocation comes our way, we want to be able to compete with any state in the country. So this is set up to effectively alleviate all corporate income taxes for a five-year period and then another five-year period of stair-stepping to our corporate income tax, which is much lower than it used to be. As we continue to look at reducing taxes as we have by 20% within the Sanders administration with more cuts likely to come, but the corporate headquarters relocation will really give us a boost in that. And then one that has a significant opportunity for an impact on communities is one that made the list of constitutional amendments called economic development districts. This will be talked about a lot from now till next November, would give community leaders tools that they've not previously had, will give them authority that they've not previously had to do projects that redirect sales and property tax, anything from industrial development to commercial, residential, retail development. So across the board, a very significant piece of legislation there.

Yeah, I know you're very excited about that one and that you referenced it, but it does go to a vote by the voters of Arkansas. And that is November of 2026.

Yeah, okay. Last question for both of you, just to jump in, what are you hearing from the people you're talking to, from prospects to people around the state? Hugh, how about you?

Well, I would maybe echo, it was great to get third party verification of what we think is good, but when you get third party verification of others saying, oh, what Arkansas did really makes sense. And a recent site consultant post talked about all the economic development legislation that we passed, basically saying that Arkansas is ready to compete. So it's very exciting to see that. I think the energy legislation that was passed has already had a positive impact with some active projects that we're working on. So what we hoped would happen, I believe I could say, is actually happening.

That's great. Clint, how about you? What are you hearing?

Yeah, I was thinking about the same. It may be the same LinkedIn post that Secretary McDonald was referring to by Patrick Hanlon with GLS. And we've really made an effort that you've led for us, Clark, on getting louder in Arkansas. As we had some consultants in the state last October that encouraged us. Wow, you have a lot of great things going on here. Get louder. Tell people about it more often. We turned up the volume. So we turned up the volume. And I don't know, maybe some are saying, okay, that's too loud, but we're going to keep it coming.

Right. We're recording this podcast on June 9th. We've had three economic development announcements in the last week. And each of those came with economic development email alerts. One earlier today.

That's right. We're telling the world about it. So same with legislation. As we talk about impact and the significant changes that were made, the supportive nature of the Arkansas General Assembly, how pro-business, pro-economic development they are. I think that's being heard around the country. And we've gotten some great feedback. That's very exciting.

Well, congratulations to both of you on all the work you did and all the work by the team. Many, many hours of preparation leading up to the session and then working and collaborating with the legislature, seeing these bills through. We certainly appreciate the support of the governor's office and all of our representatives and senators.

Our guests today on the Arkansas Inc. podcast, again, have been Hugh McDonald, Secretary of the Arkansas Department of Commerce, and Clint O’Neal, Executive Director of the Arkansas Economic Development Commission. Two very busy guys who are running around and getting ready to head off to the Paris Air Show later this week to represent Arkansas along with others. And so I just want to thank you for taking some time to visit with me today.

Thank you, Clark.

Thanks, Clark.

All right. If you would like to learn more about the impact legislation that we talked about today, visit the AEDC website at arkansasedc.com.

You've been listening to the Arkansas Inc. podcast. I'm Clark Cogbill, Director of Marketing and Communications for the Arkansas Department of Commerce. You can subscribe to the Arkansas Inc. Podcast on Apple Podcasts, Spotify, and other podcast apps. For more information about the Arkansas Economic Development Commission and to sign up for the AEDC monthly newsletter, visit arkansasedc.com and connect with us on LinkedIn, Facebook, X, and YouTube. As always, thank you for listening.