In Iowa Layoffs Can Pay Off

It is not uncommon for state and local governments to pay out subsidies to companies to get them to retain existing jobs rather than creating new ones, but Iowa finds itself in the position of giving millions to food giant Kraft Heinz to eliminate far more jobs than it is saving. The move has sparked an intense debate in the state about what economic development incentives are supposed to do.

Kraft Heinz recently announced that as a result of restructuring and consolidation it will be closing six plants across North America and eliminating 2,600 jobs. Cities in California, Maryland, New York, Pennsylvania, Wisconsin, and Ontario, Canada will see their facilities closed. Relatively speaking, Davenport, Iowa has emerged as a winner: the company will stay in the city and will build a new, state-of-the-art plant. Nevertheless, it’s a bittersweet win. The new facility will employ far fewer workers than the old one, possibly 900 fewer.

In return for staying in Iowa and retaining at least 475 out of the current 1,400 jobs, Kraft Heinz will receive more than $20 million in state and local subsidies. About half of that will come from a tax increment financing district; $1.75 million will be in a form of state tax credits for job retention; a $3 million forgivable state loan will pay for demolition of the old plant; and a $5.8 million state and local grant will be used to build a road near the new location. This will come on the top of money that the company previously received from the state (see Subsidy Tracker for several entries for the Davenport plant).

This subsidy deal is controversial. The Des Moines Register’s editorial board strongly opposed the deal and called it “a new low in the out-of-control race to keep or attract employers.” The paper called on the Iowa Legislature to review all state economic development tax breaks. Others saw the deal as a necessary evil to save at least some jobs. “It's just one of those things we had to do to hold what we've got,” a Davenport alderman said. A spokesperson for the Iowa Economic Development Authority said the Agency was trying to find the balance and do the right thing.

The Kraft Heinz illustrates the dilemmas of economic development these days.  Struggling localities are ready to offer subsidies to large companies to secure any jobs and any investment. Davenport Mayor Bill Gluba eloquently described the situation: “It's a sad commentary on modern-day capitalism that you have to give up property tax money, which is used to fund our schools, for jobs. But if you don't do it, we don't have the jobs to pay our taxes.”  State Senator Joe Bolkcom from Iowa City said that legislators across the country “are fatigued with perpetual bidding wars between states.” He offered a badly needed solution: a truce between states and a national referendum on the issue. We couldn’t agree more.