A new forecast from the American Legislative Exchange Council ranked Arkansas No. 6 for the best economic outlook in their index. Hugh McDonald is the Secretary of Commerce for the state of Arkansas. We spoke over the phone this morning about the latest report from ALEC.
McDonald says he's very happy about the ranking.
Hugh McDonald: We've been making really, really good progress over the last five years or so. What I like about this ranking is it's pretty objective — take all the subjectivity out of it. It looks at about 15 different economic variables from all kinds of tax rates: personal, corporate income, property tax burden, sales tax burden, total tax burden. How has the legislature made recent legislative tax changes? Are they moving one direction or the other? Inheritance tax. They also look at how well the state is actually doing financially with regard to its debt service as a total share of their total tax revenue. They look at public employees per 10,000. Per capita, is our legal system, court system, reasonable? What is our minimum wage, workers' comp costs? Are we a right-to-work state? Those are very objective measures — yes or no, pretty much.
And what I like about it is that we've really been climbing the ladder. In 2021, we were ranked 23rd in the country. When Governor Sanders got in office, I think we were ranked 16th at the time. Then we moved to 15. Last year we moved to 10, and this year we're sixth in the country. So pretty positive changes in terms of overall economic ranking.
Matthew Moore: You talked a little bit about legislative action that's happened here. Talk more about that. What have you seen at the legislative level that has played a role in this jump from 23 to six?
Hugh McDonald: Certainly the move that Governor Sanders — her predecessor, Governor Hutchinson, had been working on for the past 10-plus years. But we've really made some significant strides over the last three or four years in personal income tax. We are ranked 13th, with this most recent change dropping down to 3.7% as the highest marginal income tax rate — 13th lowest in the country. And if they further reduce the corporate income tax, we'll probably be ranked about sixth in the country. Workers' compensation costs — the last 10 years or so the state has made really strong strides to keep our workers' comp costs down. Property tax, we're ranked second in the country in terms of our property tax burden. So there's just a lot of strong economic indicators that are helping grow business, create jobs, create wealth in the state.
Matthew Moore: This is a forecast — ALEC is looking at current policies and looking ahead at what these policies could do for the state. What do you think it will take to make sure that this forecast becomes a data point you can look at in the future and say the things we strove to do actually happened?
Hugh McDonald: They also have an economic performance ranking that actually looks at the backward measures based on the state's performance on three important performance variables. Those are state gross domestic product, absolute domestic migration and non-farm payroll employment. We're ranked 16th there in actual performance. Last year we were ranked 19th, so we continued to move in the right direction.
I'd also say that our labor force participation rate — the % of our working-age population that is either working or actively looking for a job — has been significantly improved. Historically, Arkansas has trailed the national average on labor force participation rate by roughly 5%. The national average may be 63, we're at 58. We tracked this number pretty closely. And when the governor came into office, it was 57.4, and today it is 59.2. So it's gone up almost 2%, which is an outlier — the national has actually dropped a couple tenths of a percent. So people are getting off the sidelines and they're going back to work. They either see wages are higher, they're going back to work, or perhaps costs have gone up too and they need to get a job. There are a lot of reasons why people are going back to work, but overall that's a positive indicator for the state as well.
Matthew Moore: My last question for you here: Arkansas ranks 47th in actual median income, according to the Census Bureau. Median household income is just over $62,000. From your vantage point, do you think that a state can have a great economic outlook ranking and still have significant economic struggles for its residents?
Hugh McDonald: I would say number one, yes, because you also have to look at a statistic you didn't cite there, which is the overall cost of living in the state of Arkansas. And the cost of living in the state of Arkansas is the lowest in the country. So it costs a whole lot less to live here as well.
That was Arkansas Commerce Secretary Hugh McDonald. We spoke over the phone this morning.
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