A cautionary tale for economic development boosters

Catching up on some sad news from last week, no electric cars will roll off assembly lines in Webster City. On the contrary, the city will be lucky to get back money it loaned to a company that never delivered on its owner’s promises.

In July 2010, state government and Webster City officials enthusiastically announced plans to manufacture electric cars at an existing plant. The factory had long been used to build Electrolux appliances, but that company made clear in October 2009 that the Webster City plant’s days were numbered.

Residents and city officials were understandably desperate to find a new use for the factory before Electrolux shut down local operations in the first quarter of 2011. Economic development loans helped land the electric car project, which was supposed to create 300 jobs in Webster City by the second quarter of 2011. However, one deadline after another slipped by. Now the Auto Manufacturing Systems company and its owner, Joe Fleming, have both filed for bankruptcy. Webster City stands to lose a lot more than the jobs that never materialized, according to Anne Blankenship’s report for the Fort Dodge Messenger.

Fleming said in a December 2010 interview that his company had been plagued by delays due to the unavailability of parts and design concerns with the battery system. […]

Webster City’s City Council initially awarded $300,000 to AMS [Auto Manufacturing Systems Inc] in August 2010. The term of the loan was for 18 months. In January 2011, the Council granted an additional $490,000 to DriveTek Iowa, formerly known as AMS Inc. The loan was to come due in six months and the company offered up equipment and buildings as collateral.

An extension of that loan was approved in August 2011, making the note due on Feb. 1, 2012.

In October 2011, Fleming announced a new focus for his business – producing electric scooters and pontoon boats.

The Council approved a one-month extension on the note earlier this year, setting the due date at March 1. City officials said in a January memo to the Council that they continued to receive updates from Fleming on Drive Tek Iowa’s progress, but that the company “continued to be impacted by outside factors.”

When no payment was received in March, the Council on March 19 directed City Attorney Gary Groves to write a letter to Drive Tek Iowa concerning the past due note. At the time, Sadler said he hoped the company would make the payment within 30 days or make a better proposal to the council.

Two weeks later, Fleming filed for bankruptcy.

City manager Ed Sadler told Blankenship that Webster City officials are “working vigorously” to get the city’s money back and are “second in line to United Bank of Iowa in terms of creditors.” He added that the experience may affect future decisions on economic development loans, although “There is always risk to get industry and businesses here.”

Webster City officials and members of the business community have done a lot to improve the local economy. Riverfront development efforts have been impressive, making the Boone River a Designated Water Trail and Iowa’s first Protected Water Area. In this case, the prospect of landing a cutting-edge manufacturer may have short-circuited the due diligence needed before committing hundreds of thousands of dollars of public money.

I was excited by the prospect of electric cars being manufactured in Iowa. I should have been more skeptical. Bleeding Heartland user itserich warned when this story broke,

This does not appear to me to be a serious company.

The web site does not list battery size, payload capacity, any indepdent tests.  Who is providing the vehicle guarantee and what is its financial status?

I would encourage anyone to be very cautious, learn about batteries and getting facts beyond a press release, when it is not even on the web site.

Amen to that. Webster City’s headache should be a warning to us all, especially to city staff and elected officials thinking about offering loans, grants, or tax incentives to private corporations.  

Tags: Economy, Jobs, Local

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  • no oversight

    The Iowa Policy Project has explained there is almost no attempt to evaluate return on taxpayer contributions to private companies.

    It would be great if news organizations would file open records requests and see if any attempted oversight or evaluation occurs.

    • it's frustrating

      to see tens of millions spent this way with no scrutiny, and hardly anyone in politics questions it. Yet policy-makers are hesitant to support social or environmental or public health programs that are much less expensive.

  • True

    I don’t know if it really is a matter of people just not wanting to fund public projects, the people of Webster City probably want to add a little more to the public coffers so projects can be paid for.  I guess they took a shot and got burned, but I commend them for trying.  You are absolutely correct on the question of oversight.