Accountable USA - Iowa

Despite its modest tax base and many depressed rural counties, Iowa provides generous job subsidies to businesses. For example, in 2012 state and local economic development officials put together a $251 million package for Orascom Construction Industries’ fertilizer plant (see below) and in 2014 another nine-figure package for an expansion of a Microsoft data center in West Des Moines.

Iowa has become a hub for data centers. Companies are attracted not only by low energy costs and available land but also by the state’s willingness to subsidize their facilities. Aside from the Microsoft deal, in 2013 Facebook opened a data center in Altoona with $18 million in public support.

During mid and late 2000s, Iowa experienced mounting controversy over accountability in the state’s subsidy programs and the agencies that oversee them. For example, a review of the Industrial New Jobs Training Program revealed that in fiscal year 2006 it was the most expensive training program in the country.

An even bigger scandal erupted over the state’s film tax credit. Reports of mismanagement and fraud by recipients led to a suspension of the program and the filing of criminal charges against some filmmakers as well as the former program manager. An October 2010 report by the Iowa Auditor found that 80 percent of the film credits in the previous three years were awarded in error. The program was later eliminated.

In response to the film controversy, and in light of the budget crisis faced by the state, then-Gov. Chet Culver assembled a panel in November 2009 to review all of the state’s tax credits. The panel made various recommendations to cap and eliminate subsidy programs but did not suggest online disclosure, which transparency advocates view as a missed opportunity.

Following the release of the panel’s recommendations, legislation was enacted to make some changes to Iowa’s tax subsidy policies, but observers such as the Iowa Fiscal Partnership viewed these as mostly cosmetic. (For a breakdown of the panel’s recommendations compared to the legislation eventually signed by Gov. Culver, see IFP’s report here.)

In 2011 the Iowa legislature approved a plan promoted by the new Gov. Terry Brandstad to privatize the state’s economic development functions. Iowa's Department of Economic Development was replaced with the Iowa Economic Development Authority (IEDA), a public agency with public-private board. The Iowa Partnership for Economic Prosperity (IPEP), which includes private and public members, was established as an advisory board to the state government.

IEDA publishes online recipient data for several types of subsidies, including the Enterprise Zone and High Quality Job Creation programs. (In Show Us The Subsidized Jobs we evaluated the 2012 annual report, the latest available at that time. After the publication of our study, the 2013 Report, which no longer is downloadable to a spreadsheet, was posted.) Separately, the Department of Revenue publishes an online list of recipients of the Research Activities tax credit in excess of $500,000. This is the result of a disclosure requirement enacted in the 2009 legislative session.

Key Subsidy Programs

Subsidy Program Recent Annual
Cost
Online Recipient
Disclosure
Recipient Disclosure
Score
Job-Creation/
Job-Quality Score**
Monitoring/
Enforcement Score***

Enterprise Zone

multiple local and state subsidies (property tax abatement income tax credits etc.) for firms located in designated zones; reported to be ineffective in creating jobs and not targeted to areas of greatest need

$6.2 million (FY2013)
60/100
90/100
90/100

High Quality Jobs Program

various tax credits, exemptions, and/or refunds for firms meeting job creation, wage, and benefit requirements

$102.8 million (FY2013)
60/100
not included
not included

Industrial New Jobs Training (260E)

training of new workers at designated companies by community colleges; costs paid from personal income tax withholding of those workers

$39.7 million (FY2013)
0/100
73/100
72/100

Iowa New Jobs Tax Credit (260E)

one-time corporate income tax credit available to companies that entered into a New Jobs Training agreement (260E); the tax credit depends on wages

$29.8 million (FY2013)
0/100
not included
not included

Research Activities Credit (RAC)

refundable state income tax credit for qualified research and development expenditures; controversy centers on high costs associated with refunded credits; new disclosure requirements effective July 2009

$46 million (CY2012)
15/100
10/100
18/100

* The score is derived from the Good Jobs First report Show Us the Subsidized Jobs (January 2014).

** The score is derived from the Good Jobs First report Money for Something (December 2011).

*** The score is derived from the Good Jobs First report Money-Back Guarantees for Taxpayers (January 2012).

Major Subsidy Deals

Google Server Farm (2007)

After the Iowa legislature agreed to enact a large sales tax exemption for electricity without knowing which company it was meant to benefit, Google announced in June 2007 that it would build a $600 million server farm/data center in Council Bluffs. The company was also offered a property tax abatement by local authorities that was initially valued at $48 million. Google also went after about $1.4 million in state corporate income tax credits. Apparently pleased with Iowa’s generosity, Google later announced plans for another data center in Council Bluffs. The first facility, expected to eventually employ 200, opened in May 2009. (Key sources)

IBM (2009)

In exchange for a commitment by IBM to create 1,300 jobs at a new customer service center in Dubuque, state and local officials in 2009 assembled a $52 million subsidy package that included the complete renovation of a historic downtown building. IBM said the jobs, which could top 3,000 in the future, would pay an average of $45,000 a year and require a two-year college degree. Iowa’s Economic Development Board provided IBM with $11.7 million in forgivable loans under a program to encourage high-wage employment. The board also gave an $8.5 million cash grant and $1.85 million in tax credits through its New Jobs Training program.

The city of Dubuque granted both IBM and the building owner, Dubuque Initiatives, 20-year property tax abatements worth over $3 million, ten years of free shuttle bus service, a forgivable loan and a dedicated staff person to help with worker recruitment. The quasi-public Dubuque Initiatives, which will manage the city-owned building, received an additional $24.5 million in state and federal historic preservation tax credits and federal New Market tax credits for its renovation. Dubuque Initiatives is developing the first floor as retail, with the rest of the building leased to IBM for ten years. IBM’s investment was estimated at $120 million. As of July 2010, 1,000 of the positions had been filled. In June 2011 the company received a six-month extension on the deadline for meeting its job creation target. (Key sources)

Orascom Construction Industries (2012)

In 2012, Iowa Fertilizer Co., a subsidiary of Egyptian-based Orascom Construction Industries, announced construction of a large-scale fertilizer plant in Iowa. After setting up a competition between Iowa’s counties, the company decided to build the plant near Wever in Lee County. The project, which represents the largest industrial investment in the state, was approved for $251 million in state and local subsidies. The costliest and the most controversial subsidy package in the Iowa’s history was justified by the competition with neighboring Illinois (later it appeared that Illinois never made any proposal to the company and did not want to engage in a bidding war).  The package consisted of state tax credits worth up to $107 million and county property tax abatement worth an estimated $133 million, among other subsidies (see this Megadeal entry for the deal). The state also made available to the company $1.2 billion in tax exempt bonds. (Key sources)

Walmart in Iowa

  • At least 6 Wal-Mart locations have received subsidies worth about $16.7 million in Iowa.
  • At least 3 Wal-Mart locations in Iowa have challenged their property tax assessment.
  • Wal-Mart was found to have more workers than any other employer in the state relying on publicly-funded health insurance. This shows how taxpayers end up subsidizing Wal-Mart’s policy of providing low wages and inadequate benefits.

For more information, see the Iowa page of Wal-Mart Subsidy Watch.