State Sen. Joe Bolkcom, D-Iowa City, chair of the Ways and Means Committee says there's no way Iowa should have dipped so deeply into its means to secure a fertilizer plant project in Lee County.
Iowa upped its potential state incentives package to Orascom Construction Industries to $110 million, along with $144 million in local tax breaks, to make sure the project didn't go to Illinois, according to the governor. But Bolkcom contends that the company had already secured low-interest bonds through the Midwest Disaster Area Bonds program, bonds that could only be used at the Iowa site.
The bonds allow private companies to borrow at tax-exempt rates, Bolkcom said, meaning they save up to 2 percent on their borrowing costs. Assuming the bonds produce a net savings of $300 million to Orascom, he said, the corporation would receive a total of nearly $550 million in taxpayer subsidies from federal, state and local governments.
“This is the worst economic development deal in state history,” said Bolkcom, chairman of the Senate Ways and Means Committee, who calculated that the 165 permanent jobs that will be created in Lee County would cost about $3.3 million per job in taxpayer subsidies.
“Illinois could never compete with the federal subsidies worth as much as $300 million that Orascom Construction Industries would gain for siting the plant in Lee County, a federally declared flood disaster area,” the Iowa City Democrat contended.
Gov. Terry Branstad's office disagrees:
Branstad spokesman Tim Albrecht refuted Bolkcom’s claims, saying the state needed to provide up to $110 million in tax credits to sway the company to bring 165 permanent jobs and hundreds of construction jobs and other benefits to Iowa rather than seeing the project end up in Illinois.
“Gov. Branstad won’t apologize for fighting for every single job that he can bring to the state,” he said.
“These incentives did need to be there in order for Iowa to compete for this lucrative project,” Albrecht added. “We simply weren’t going to turn our backs of the people of southeast Iowa who have a higher unemployment rate than the rest of the state, and we were going to fight for those jobs. Gov. Branstad came to the table and fought for those jobs and was successful.”
Here's More about the Midwest Disaster Area Bonds, a federal program administered by the Iowa Finance Authority:
The Heartland Disaster Tax Relief Act (HDTRA) of 2008 provides assistance to areas in the Midwest that suffered severe storms, tornadoes and flooding in the spring and summer of 2008. One of the provisions of HDTRA is the creation of Midwestern Disaster Area (MDA) bonds.
MDA bonds are a new kind of private activity tax-exempt bond designed to facilitate the economic recovery and rebuilding of areas damaged by the severe weather. The bonds are issued on a conduit basis; that is, the borrower (business) is responsible for repaying the debt. Rates and terms will be dependent on the credit-worthiness of the borrower. Iowa was provided $2.6 billion in bonding authority for MDA bonds.
To qualify, the business or trade must have suffered a loss attributable to the severe storms, tornadoes or flooding or, the business must be replacing a business or trade that suffered a loss. Because Iowa lost so many businesses from the storms, tornados and flooding, most businesses locating, expanding or improving facilities in Iowa can be considered replacing a business that suffered a loss.
The loss and the project financed with the MDA bonds must be located in any one or more of the 78 Iowa counties declared a major disaster area by the President as part of disaster number FEMA 1763-DR declared on May 27, 2008. In Iowa, all counties except Buena Vista, Calhoun, Carroll, Cherokee, Clay, Dickinson, Emmet, Ida, Jefferson, Lyon, O’Brien, Osceola, Palo Alto, Plymouth, Pocahontas, Sac, Shelby, Sioux, Taylor, Wayne, and Woodbury are included. A total of 78 counties throughout Iowa are eligible.
Bolkcom's point is that the bond program was a big advantage for Iowa over Illinois, big enough that a large pile of additional tax breaks wan't necessary to land the project. It's an issue worth raising.
Earlier this month, Illinois development officials insisted that they had not put a bid on the table for Orascom. Could be sour grapes from Illini losers, as Branstad suggested. Could be we overbid. Could be both.
Bolkcom and Branstad are politicians, so there's always going to be a certain amount of spin. But I think this episode should open up a couple of important covnersations.
One, as Branstad suggests, on our corporate tax structure and whether it can be improved in such a way that makes company-by-company giveaways unnecessary.
Two, as Bolkcom suggests, a discussion on how much authority appointed economic development officials should have to hand out incentives of this magnitude, and whether elected legislators should be involved.