A scandal waiting to happen

Governor Terry Branstad’s plan to transform the Iowa Department of Economic Development into a public-private partnership won approval from the Iowa House this week. House File 590 would create an Iowa Partnership for Economic Progress, with three separate boards supervising various aspects of economic development work. Supporters say they have worked to make Branstad’s preferred model more transparent, but its convoluted structure invites the kind of abuses seen in other states where private entities have control over economic development incentives.

More details on House File 590 and its path through the Iowa House are after the jump.

From Jason Clayworth’s report for the Des Moines Register:

Under the bill, a partnership board would act as an advisory body within state government. It would have a seven-member board led by the governor or lieutenant governor and filled with business leaders.

The Economic Development Authority, which would be a separate group, would have a nine-member board to oversee awarding business incentives and do work that is currently done by the state’s economic development department.

A third board would oversee the nonprofit corporation. The authority could hire the nonprofit corporation to perform economic consulting services. The nonprofit corporation would raise and distribute money from private sources to further economic development.

The reorganization would also place five of the authority’s top jobs under the review of its board. The board, rather than lawmakers, would set their salaries.

Additionally, the economic director would longer be appointed by the governor and would instead be hired by the authority’s board.

Various versions of the bill have been under discussion for weeks. State leaders have amended the plan to increase transparency and require an annual independent audit of the nonprofit corporation.

That organization seems a bit confusing, even with the added “transparency” elements. The bill history for House File 590 shows that Iowa House members did pass quite a few amendments before approving the bill on March 28. For instance, one amendment that was approved calls for setting “annual numerical goals for the authority pertaining to the creation of jobs in the state. If such goals are not met an explanation of the reasons shall be provided to the general assembly.”

Another amendment approved unanimously forbids the “corporation from engaging in favoritism and pay-to-play tactics for companies doing business with the corporation.”

Nice words, but talk is cheap. The House voted down an amendment offered by Democratic Representative Chuck Isenhart, which would have put teeth behind the alleged desire to prevent potential favoritism:

The authority and the corporation shall not provide financial assistance, enter into contracts, or otherwise provide benefits to a person or entity that has made an independent expenditure in a campaign or that has contributed more than seven hundred fifty dollars to a person who made an independent expenditure as defined in section 68A.404, subsection1, in any year during the previous five calendar years.

The authority and the corporation shall not provide financial assistance, enter into contracts, or otherwise provide benefits to a person or entity if that person or a principal executive, director, or person with a direct financial interest in the entity, has made contributions to a political candidate or candidate’s committee exceeding thresholds established by rule.

House Democrats also were not able to win approval for Kirsten Running-Marquardt’s amendment, which sought to focus economic development efforts on small businesses. Democratic Representative Helen Miller’s amendment seeking to require more balance on the authority’s 15-member board (in terms of political party affiliation, age and type of occupations) failed on a party-line vote.

Bleeding Heartland has sometimes criticized economic development bodies like the Iowa Values Fund for being glorified corporate welfare. This week backers claimed future economic development efforts will be different:

The proposed nonprofit gives the state the infrastructure needed to create a seed fund to assist startup companies, [state economic development director Debi] Durham and Robert Riley, a Des Moines businessman, said in a meeting with Des Moines Register reporters and editors.

“Economic development should be 80 percent based on innovation,” said Riley, a member of the Iowa Innovation Council. “Your father’s Oldsmobile of going out and bribing companies is not a sustainable system.”

I would love to think that the Iowa Partnership for Economic Progress will put 80 percent of its resources behind “innovation” rather than bribing already-established companies, but I’ll have to see it to believe it. Looking at the lobbyist declarations for House File 590, we see a long list of large companies backing this bill, including Wellmark, Monsanto, Rockwell Collins, Hy-Vee, Deere & Company, MidAmerican, and the Principal Financial Group. I doubt they would be enthusiastic about reorganizing state incentives to focus on start-ups.

Many organizations representing business interests have lobbyists registered in favor of House File 590 too; examples include the Greater Des Moines Partnership, the National Federation of Independent Business, the Cedar Rapids Chamber of Commerce, the Iowa Association of Business and Industry, Professional Developers of Iowa, and the Iowa Taxpayers Association. The only lobbyists registered against the bill represent various labor unions, Iowa Citizens for Community Improvement, and the Iowa Environmental Council.

Regarding the partnership’s future transparency, here’s some unintentional comedy from Branstad’s point person on the issue:

Debi Durham, director of the state’s economic department, told Register editors and reporters Monday that she is open to making public the donors to the nonprofit arm.

The bill additionally includes a section on conflicts of interests that requires the authority’s employees to disclose in writing direct or indirect interests in contracts the group is considering.

Publishing the list of donors to the nonprofit is the bare minimum of what needs to happen to protect the public interest. In other states boards have steered economic development funds toward individuals and corporations that have donated to other “good causes.”

Disclosing the donors alone won’t prevent similar abuses, because it’s too easy to conceal conflicts of interest. For instance, a business owner or CEO seeking economic development funds could have friends or relatives (with a different surname) make donations to the non-profit. The board giving out grants could be aware of the ties, while an investigative reporter combing through the donor list would remain in the dark.

The final vote on House File 590 was 66 to 33. All House Republicans present except for first-term conservatives Tom Shaw (district 8) and Kim Pearson (district 42) voted yes. Nine Democrats joined them: Chris Hall (district 2), Lisa Heddens (district 46), Dave Jacoby (district 30), Jim Lykam (district 85), Brian Quirk (district 15), Kirsten Running-Marquardt (district 33), Sharon Steckman (district 13), Roger Thomas (district 24), and John Wittneben (district 7). The rest of the House Democratic caucus voted against this bill.

My guess is that House File 590 will make it through the Iowa Senate, perhaps with further amendments and accountability measures. During the next month, big fights loom with the Branstad administration and House Republicans over education funding and other budget issues. I don’t think a narrowly-divided Senate will go to the mat to stop Branstad from putting his stamp on economic development.

If House File 590 becomes law, Iowa media will need to keep a close watch on how the Partnership for Economic Progress does business.

LATE UPDATE: At an Iowa Senate subcommittee hearing on April 7, Debi Durham made a concession to transparency advocates:

Gov. Terry Branstad’s economic development chief said Thursday that private donations made to a new state job-creation entity would be publicly disclosed.

Debi Durham, director of the state Department of Economic Development, said she hoped the position change would facilitate legislative approval of Branstad’s plan to revamp the current state Department of Economic Development into a public-private partnership. […]

“We’ve conceded that we’re going to list all the donors publicly for the corporation, and that we’ve cleared this whole conflict of interest and this pay to play,” Durham said Thursday. “We will now disclose all the donors to the corporation, which is something we have not conceded in the past.” […]

At Thursday’s subcommittee meeting Durham proposed adding seven ex-officio members to PEP’s nine-member board of directors and she said she would be open to a suggestion of having one board member come from the ranks of labor organizations.

The same article mentions other proposals to revise House File 590.

[Senate Economic Growth Committee Chair] Sen. Steve Sodders, D-State Center, said he would prefer that the governor appoint the agency director to a six-year term subject to Senate confirmation rather than having the governor pick the board members – who would have to be confirmed by the Senate – and then allowing the board to select the director. He also said he would like to see the Grow Iowa Values Fund stay as it is, while Durham said she expected the state would still need an incentive program regardless of what policymakers chose to call it.

  • Who drafted it?

    Is this another plank in the platform drafted by the Mackinac institute, or some other right-wing “think tank”?  How many other states have something similar in the works?  I read that Walker in Wisconsin put something like this into his budget repair monstrosity.  Chances are it’s a Koch-funded effort to siphon cash to the corporate supporters of the Republican party.

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