Iowa Senate Ways and Means Committee Chair Joe Bolkcom asserted today that state and local tax dollars were “wasted” on a deal to lure a company to build a fertilizer plant in Lee County, because the Orascom corporation already had huge financial incentives to build in Iowa.
As chair of the Iowa Senate Ways and Means Committee, Bolkcom has led efforts to evaluate the effectiveness of state tax credits as business incentives. Over the past decade, tax credits have become increasingly expensive, and legislators should question whether the state is getting enough “bang for the buck” on these deals.
In a September 19 guest editorial for the Des Moines Register, Bolkcom argued, “This fertilizer plant deal stinks.” He compared the project to Branstad’s previous “so-called economic development deals that are great for big corporations but do nothing for middle-class families and small businesses.”
Today Bolkcom explained why the Egyptian company Orascom would have built its $1.4 billion fertilizer plant in Iowa even without large tax exemptions from state and county government.
I’ve enclosed a YouTube from Bolkcom’s press conference below. This Iowa Senate statement gives background on why access to disaster bonding “was an unbeatable advantage for Iowa” in the negotiations with Orascom, “if the Governor had only realized it.”
“It was clear by mid-April that that the Illinois sites were never really in the running,” said Bolkcom. “We should have cut commercial property taxes for every Iowa business instead of giving a multinational corporation $250 million when we didn’t have to.”
In discussions with Iowa Department of Economic Development officials, Bolkcom, the chair of the Senate Ways and Means Committee, learned that Orascom was approved for $1.2 billion in Midwestern Disaster Area (MDA) bonds by the Iowa Finance Authority on April 13, 2012. MDA bonds were created to help businesses recover from the historic 2008 floods that devastated parts of the Iowa and the Midwest. Every site under consideration in Iowa qualified for the bonds; the competing Illinois sites did not .
“This is the worst economic development deal in state history,” said Bolkcom. “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 bonds allow private companies to borrow at tax-exempt rates, meaning they save 1 to 2 percent on their borrowing costs. Assuming the bonds produce a net savings of $300 million to Orascom, the corporation would receive a total of $550 million in taxpayer subsidies from federal, state and local governments. This means that 165 permanent jobs created will cost approximately $3.3 million per job.
Midwestern Disaster Area (MDA) bonds were created to help businesses recover from the historic 2008 floods that devastated parts of the Iowa and the Midwest. These bonds were created after the floods of 2008. They were modeled after bonds created after 9/11 (Liberty Zone bonds) and after Hurricane Katrina (Gulf Opportunity bonds). They expire at the end of the calendar year.
MDA bonds allow private companies to borrow at tax-exempt rates. The bonds are purchased by anyone from insurance companies, pension funds, investment funds, to private individuals. The interest earned on the bonds is exempt from federal taxes (not Iowa state taxes).
MDA bonds are only available in counties that received a FEMA Disaster Declaration after the 2008 floods. Lee County, where the Orascam plant is to be located, received this Disaster Declaration in 2008. The Illinois sites under consideration were Peoria (Peoria County) and Pekin (Tazewell County). Neither was eligible for federal Midwest Disaster Area bonds.
Orascam, also known as the Iowa Fertilizer Company, applied and was approved for $1.2 billion in MDA bonds by the Iowa Finance Authority on April 13, 2012.
Information from officials at the Iowa Finance Authority indicates that the spread would likely range from 1 percent to 2 percent. For a $1.19 billion bond issue to be repaid in equal annual installments over a 20-year period, the savings in interest would amount to between $153 million and $297 million, depending on what the interest rate differential turned out to be.
Bolkcom distributed these maps at the press conference to illustrate Iowa’s competitive advantage over Illinois:
Radio Iowa’s O.Kay Henderson reported on the Branstad administration’s reaction today.
A spokesman for Branstad says Bolkcom “clearly does not understand the fundamentals of job creation.” Tim Albrecht (ALL-brehkt), the governor’s communications director, says Bolkcom’s “outright hostility to job creators” has blocked “meaningful property tax relief for Iowa’s businesses.”
Albrecht also said Branstad “will never apologize for fighting for every single job in this state, especially in southeast Iowa, which has some of the state’s highest unemployment rates.”
In high school debate, we would have called that a “non-response.” Bolkcom supports a different approach to lowering commercial property taxes, which Senate Democrats say would help small businesses more than a competing Republican plan. But today’s news isn’t about property taxes in general, it’s about one sweetheart deal for one corporation.
Albrecht was trying to draw attention away from the question Bolkcom raised: whether the governor needed to “fight for every single job” Orascom promised at a cost of more than $1 million per permanent job created. Clearly it is not possible for taxpayers to provide that level of support for every potential job-creating project. Albrecht did not address Bolkcom’s main point: state government and Lee County wasted money on a company that would have built in Iowa anyway.
“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.
“I believe this plant was coming to Iowa and we got taken to the cleaners,” he told reporters.
Any relevant thoughts are welcome in this thread.