Iowa Legislature will face incentives question in 2013
Legislature could debate economic assistance
Iowa lawmakers expect to invest a good share of their 2013 session focusing on ways to create high-quality jobs and ensure there is a skilled work force to fill them.
Since leaving the Capitol last May, Iowa Economic Development Authority (IEDA) officials landed back-to-back billion-dollar fertilizer plant projects that set Iowa investment records.
The deals also brought with them a renewed debate over the use of taxpayer-funded business incentives and whether tax policy needs to be reshaped to aid corporations or working families in positioning for future growth.
Iowa also went through a bare-knuckles election cycle in which Republicans emerged with a pared-back 53-46 majority in the Iowa House while Democrats clung to their scant 26-24 edge in the Iowa Senate. That means Republican Gov. Terry Branstad will have to work with a divided legislative branch to carve out what agreements can be forged from the middle of the political road for Iowa’s economic betterment.
NEED FOR A REVAMP?
State economic development chief Debi Durham said Iowa’s 2012 successes in landing business projects is straining the state’s tax credit capacity that lawmakers capped at $120 million a year — an issue that will need attention early in the 2013 session along with a number of new prospects in the IEDA pipeline.
Gov. Terry Branstad said the competition for the $1.4 billion fertilizer project that Iowa Fertilizer Co., a subsidiary of Egyptian-run Orascom Construction, plans to locate in Lee County pointed up the need to revamp the state’s corporate income tax system that has a 12 percent top rate.
He said making Iowa’s income tax structure more competitive would better position Iowa to compete for job and capital investment creation projects while leveling the playing field for existing Iowa companies.
“The new companies always get the headlines, but most of our portfolio is existing companies that are coming back to do new expansions,” Durham said.
At the same time, Branstad and lawmakers from both sides of the political aisle have moved reforming Iowa’s commercial/industrial property tax and kindergarten-through-12 education systems to the top of the 2013 priorities. That may affect policymakers’ ability to address all the high-cost items on their wish lists even — with a surplus projected to top $800 million by the end of the current fiscal year next June.
State business recruiters offered more than $100 million in tax credits to supplement $130 million in local incentives to land the Lee County project, with its 165 permanent jobs and more than 2,000 construction-related jobs. Later in the year, IEDA officials awarded $1.5 million in loans and tax credits totaling $22 million to finalize a $1.7 billion investment by CF Industries in a Port Neal plant near Sioux City.
That brought the total investment under state contract since Branstad’s administration began in January 2011 to $5.245 billion — a figure that Durham called “staggering.” To achieve that, IEDA officials approved nearly $31 million in direct incentives and almost $151.2 million in tax credit awards to finance projects committed to creating a total of 14,065 jobs.
While the job total may seem small, Durham said, it represents only those directly assisted by the state and does not reflect the spinoff economic activity of contractors and suppliers associated with the investments.
“Our plan was never, ever to incentivize 200,000 jobs. The game plan is to maybe incentivize 25 to 30 percent of the jobs at the very highest level, and then what happens is that supply chain and those others will fill in,” she said.
“We feel really good about where we’re going. I definitely think we’re building a program that’s sustainable and that’s moving us in the right direction.”
A HARDER LOOK
Not everyone shares that view.
Sen. Joe Bolkcom, D-Iowa City and chairman of the Senate Ways and Means Committee, questioned why the state committed so much money when the Orascom project was approved by the Iowa Finance Authority for $1.2 billion in Midwestern Disaster Area bonds. Those bonds were created by the federal government to aid recovery from the 2008 floods.
Bolkcom expected lawmakers would take a harder look at the state’s tax-credit programs when they convene on Monday, but the partisan split control may gridlock any action.
Business groups such as the Iowa Chamber Alliance, a non-partisan coalition of 16 chambers of commerce and economic development organizations, are supporting a variety of tax credits to retain, grow and attract investments in the state.
The group also urges restoring the $185 million cap on economic development tax credits that currently stands at $125 million for fiscal 2013.
Jason Hutcheson, chief executive officer of the Greater Burlington Partnership, said tax credits are a highly effective tool that deliver a high return on investment and are essential to keep and attract businesses and to draw technology and research.
Iowa Chamber Alliance members also are lobbying legislators to spend at least $25 million for business development incentives. (The line item was shrunk to $15 million for the current fiscal year.)
Senate Republican Leader Bill Dix of Shell Rock said there is opposition to government choosing winners and losers with taxpayer-funded incentives. But, he added, “There’s no question in my mind that an incentive policy is the world we live in. I don’t appreciate that and wish it wasn’t the case, but we do need a policy that includes incentives.”
Senate Majority Leader Mike Gronstal, D-Council Bluffs, said Democrats were closer to the governor than legislative Republicans last session on funding economic development incentives. He expected they would support $25 million when they formulate a fiscal 2014 state budget.
“It does appear the treasury is relatively healthy — healthier than it’s been at any time in anybody’s lifetime, so we’re in pretty good shape and there are probably some things we can do on that front,” Gronstal said.
Making a deal
by Mike Wiser, Des Moines bureau
Two of the largest projects in state history were announced within two months of each other in 2012. Egypt-based Orascom Construction Industries signed a deal to put a fertilizer plant in southeastern Lee County for up to $100 million in state tax credits, plus other incentives, in September. CF Industries was given $22 million in state tax credits, plus other incentives, to locate a fertilizer plant in Port Neal. That deal was announced in November. Critics complained that Gov. Terry Branstad and the Iowa Economic Development Authority were too quick to hand out state incentives to companies, especially Orascom. Sen. Joe Bolkcom, D-Iowa City, said he’s working on legislation that would change the way the state doles out tax breaks.
In response to a public records request, the Economic Development Authority released copies of more than 300 emails on the topic of both deals. The emails give a window into the back-and-forth, hurry-up-and-wait and, occasionally humorous work that goes into trying to make a deal. What follows are excerpts from some of those emails.
“The article includes comments from state legislators regarding the expected benefits of the law change (est. $130MM over 10 years). Additional incentives have also been considered in discussions with state and local governmental officials. However, the proposed EDGE changes are expected to result in the greatest benefit to IFCo.” — July 31 email sent from consultant Michael Huber of the consulting firm KPMG to Economic Development Director Debi Durham about an article in a Peoria, Ill., newspaper. Iowa officials later said competition from Illinois was one of the reasons they increased the incentives they offered Orascom.
“I have been told the company IFC/Orascom has sent an edited proposal to you. I have also been told they are closing on the New Property within days and they would like us to respond to their counter as soon as possible. Hurry up and wait again. I am hoping their counter does not reduce the proposed pay schedule and am interested in seeing what their urgency is? Thank you.” — Aug. 3 email from Lee County Board of Supervisors member Gary Fulluo to attorney Robert Josten expressing some frustration with the process of negotiating with Orascom.
“Please look over this email that Bob Josten just forwarded to us re the gas replacement tax. It would appear that the message to us is that OCI did not anticipate this tax originally — and that it will be an unexpected burden to them — suggesting that it now makes Lee County uncompetitive. The letter from their attorney to Bob requests not only that Lee County cough up the percentage of this excise tax that they receive — but also the County convince the other recipients — i.e the local schools — to send to OCI the funds that they receive as well. I received a call today from Ahmed requesting the conference call.” — Aug. 21 email from Lee County economic development official Steve Bisenius to Durham on further negotiations with Orascom. Later emails showed the county did not agree to the new percentages.
“Our sons & daughters in the Iraq war do not deserve this treatment, when we taxpayers are also supposed to give to a company that either does not want to pay taxes or does dealing with the so called ‘bad guys.’” — Aug. 23 email from David and Laura Paulsen who were concerned about Orascom’s potential ties to Iraq. The email was forwarded to Durham who ultimately decided that she would reach out to the Paulsens.
“I thought when we talked to (D)ebi last week we agreed on 15k per job and she was supportive. Remember we talked about during our own training and getting reimbursed. The process using community college programs would not work for the technical roles we are looking for. I thought we had agreement on this issue last week. The sands appear to be shifting.” — Oct. 30 email from Eugene McCluskey of CF Industries to Eric Shoforth of the IEDA. Shoforth responded in later emails that there was a miscommunication and the benefit was still $15,000 per job.“Nice pivot” — Sept. 22 email from Tim Whipple, the IEDA’s general counsel, to Durham congratulating his boss for responding to a series of questions from Sen. Joe Bolkcom about incentives and disaster bonds then ending her response by mentioning she was going to stain her deck. Bolkcom responded, “Good luck with the deck! Good day for it.” instead of more questions.