John Brummett re-examines the failure of Yarnell's Ice Cream and the state's role — through two state agencies and $3.5 million in now-delinquent debt — in propping up the business for more than a decade when private lenders grew reluctant.
The philosophical options are a little more complicated, I think, than the three John describes: 1) State public financing for struggling businesses, in the manner of the SBA; 2) a pure free market without government help; 3) some government help, but not used in an anti-competitive way.
A fourth way is, generally speaking, the Arkansas way. We use public incentives to create new jobs, not preserve old ones. It is the very rare exception — an ADFA official could come up with only three for me yesterday, one being Yarnell's — where that bonding agency had stepped in to provide prop-up financing, not expansion financing. (The other two were a furniture plant and a catfish processing plant.) I'm told similar by officials at the AEDC, also on the hook for Yarnell's lending. Makes sense. Why dole out cheaper government finance to some struggling businesses, but not others, absent promise of increased economic vitality?
I learned, by the way, that ADFA entered the picture as a financial backer in 2000 after the bank then known as First Commercial (now Regions) decided not to continue as provider of variable rate financing. The state then provided new bonds in 2006 when a big balloon payment came due. I'm still running down the circumstances of the AEDC guarantee of a loan made from federal block grant money. I have no doubt that preservation of an iconic brand with emotional attachments played at least some small role. You wouldn't see Facebook pages crammed with lamentations over closure of a valve plant that supplied internal parts to the refrigeration industry (though such a plant with 200 jobs would be no less an economic player.)
It's safe to say there's still much unknown about this sad story and how it developed over the years. State officials say payments were current on the two big loans (plus a small remnant at AEDC) and they were as surprised as anyone last Thursday morning when a Yarnell's employee dropped by ADFA offices bright and early to announce the business was defunct. This decision had the instant effect of a sharp devaluation in the value of the state's collateral — the loan once had been pegged at 73 percent of the asset value. Personal guarantees are in place for the remainder of the ADFA bonds from Yarnell family members. I don't think the same is true for the AEDC loan. And there are questions remaining about which state agency has first call on which parts of the fixed assets such as a large freezer and real property. Unknown, too, is Yarnell's situation insofar as financial institutions that provided lines of credit for working capital. The guessing is that this particular element of the business situation is a key place to look for the closure decision. The state had expressed no concerns about its situation.
Finally, don't forget Blue Bell. When a much bigger competitor enters a market with a comparable or superior product at a lower cost in a shrinking market experiencing rising material costs, it's hard on the little guy. At that point, the state has some very hard thinking to do about investing public money to keep doors open. Here, too, though, it's worth remembering that circumstances were different back when the state made its long-term commitments.