Paul Yeager: In many ways Iowa is attempting to do for itself what the federal government is trying to do for the nation. The question is can a state independently recharge its own economy without being swallowed by the larger woes of the nation and its beleaguered financial system? For some answers we have with us tonight Thomas Hart, he is with the Iowa Department of Economic Development. Also with us on the program tonight is David Swenson, he is an economist at Iowa State University. And also on the program tonight is Tom Stanberry, CEO and President of West Bank, he's also chairman of the Iowa Bankers Association for this year.
Tom Hart, I want to start with you a little bit, it was less than a month ago you had your inbox, your mailbox was pretty full, about 5000 projects came to you for shovel ready projects. It was a way for Iowa to get ahead of the game so what type of projects were submitted?
Thomas Hart: All over the board, Paul. What happened is the governor and lieutenant governor sat down with a number of us last fall and said both McCain and Obama have called for a stimulus package, we feel confident that there is going to be something, let's not wait until the ink is dry on the legislation, let's figure out what kind of projects there are out there in Iowa at this point. So, he wrote a letter to counties and cities and schools and community colleges, councils of governments and said, tell us what you have shovel ready. We're looking for things that are ready to go within six months and can be built within two years. And at this point it appears we have about 5000, nearly 5000 projects that have come back. They are all over from utilities, drinking water, sewer, storm sewer, sanitary sewer, recreation facilities, school projects. We have divided them into about 30 different categories and a tremendous opportunity for investment in Iowa.
Paul Yeager: So, will a priority be put in some of the criteria so points four and five will be the things that we look to do first? Or what are some of those? You named a couple of criteria but what are some of the others?
Thomas Hart: I think the first criteria is you need them to be ready and you need them to be able to be completed in a fairly short timeframe. That is what the governor and lieutenant governor asked for in the letter. I think other criteria that will probably be worked out between the governor's office and the legislature in the coming weeks are how many jobs are created with a project both construction and maybe ongoing jobs?
Is there sustainability elements to the projects? Can you make better what you're doing now by doing this project? And then I think ultimately tied in with the jobs will be some kind of leveraging, how much are you leveraging. But all of that is to be negotiated out in the next number of weeks.
Paul Yeager: A lot of things to sit through for a little bit. Thank you very much. I want to move to the other Tom at the table, Tom Stanberry with the Iowa Bankers Association and also West Bank. Your bank did take in $36 million in federal stimulus money and so did many other banks. Your bank was in a healthy state when you got it. Tell me the health of the state's banks right now.
Tom Stanberry: Iowa's banks are very healthy right now. The fourth quarter call reports are now out and consolidated numbers show that approximately 94% of the banks in the state made a profit last year which puts us very near the top of the states nationwide. The average capital in the state is over 10% which is very healthy. On a year-over-year basis Iowa banks added about $2 billion in loans from December 31, 2007 to December 31, 2008. So, lending was strong, capital remains strong and profitability remains strong. Profitability was down from prior years but it was still a year where most of the banks in the state made money.
Paul Yeager: Talk about some of the things that you are lending money in whether it's your bank specifically but what are those projects? Are they all retail? Are they all residential? Commercial? What are some of the ways you're investing that money?
Tom Stanberry: Consumer lending still continues to be fairly steady with the drop in interest rates, of course, refinancing of home mortgages has boomed over the last 60 days, rates have gone up again and that slowed down. On the commercial and industrial area we continue to lend for projects, either expansion of existing plans, some acquisitions, very few acquisitions at this point and just normal day-to-day lines of credit.
Agricultural lending has slowed but is still near an all-time high. So, I think really all sectors of the economy from a bank standpoint we continue to lend to.
Paul Yeager: Now, you said from year-to-year the banks have improved but from year-to-year have the projects that you've been investing in change? A year ago was it different projects?
Tom Stanberry: A year ago it was certainly different. If you go back two years in the metropolitan communities around the state a high percentage of lending was for commercial real estate development. Today in most urban communities virtually zero lending is being done on commercial real estate development, particularly on a speculative basis. There are still some projects that are being developed for specific tenants but not speculative projects. So, that area of lending has slowed down almost to a halt.
At the same time our commercial lending, industrial lending, consumer lending has picked up. One big change that has occurred in the last six months is the result of the exit of a number of non-bank lenders, finance companies owned by automobile manufacturers, mortgage banks that were heavy in the mortgage business and that has pushed a lot of consumers back to commercial banks. So, the auto lending business which was almost non-existent in banks is picking back up, mortgage business which again had moved largely to the mortgage banking sector is picking back up.
Paul Yeager: Those are interesting points. So, the professor here has been taking notes. Do you hear anything, Dave, that is encouraging that Iowa has turned things around or is turning things around from what you've just heard?
David Swenson: No, I don't think Iowa's economy is turning itself around. The economy in Iowa has a ways to go before it weathers out this recession. We're just still learning how it is affecting the average citizen, the average business and the state overall.
In the most recent months our unemployment has picked up, we're starting to worry about layoffs in our manufacturing sectors, we're starting to see some of the ripple effects of some of those layoffs and so we're bracing for a little bit more bad news down the road.
Iowa is in better shape than the rest of the nation. We haven't gotten ourselves in the kind of trouble that the rest of the nation found itself, it's not whether they caused it or not, but that they found themselves in. We've had lower unemployment rates.
We haven't had a rapid rise in our unemployment rates. We haven't had the raid of housing foreclosures or some of the speculative behaviors that had to collapse in the housing market. So, on average our economy looks much better -- as a matter of fact the entire Midwestern and the plains area, not Midwestern but more towards the plains areas looks a little bit better than most of the rest of the United States. So, the peaks and the valleys, right now we didn't have the peak during the boom times and we're not suffering some of the consequences of that peak.
Paul Yeager: Which has been kind of the way Iowa has been. I think we talked about it before Christmas when we had that conversation, kind of clean some of the toxic things, let us fall a little bit and sweep it out of there. When you hear discussions of commercial lending is up coupled with a stimulus does that help push things up at all?
David Swenson: It remains to be seen just how much of what was passed or is going to be passed is truly stimulus. The portion of it that is considered stimulus is the portion that purchases new infrastructure or purchases new durable public assets so that's not very much of this entire $798 billion bill.
There's $292 billion in tax cuts and then the rest of it is safety net spending for a variety of things. So, the amount that is going to be spent on infrastructure and energy projects is actually quite small. So, how much of that is going to stimulate the economy certainly remains to be seen.
Paul Yeager: That's the federal shoe but what if the state shoe falls and we have no idea really what that's going to look like but could that maybe assist the infrastructure spending?
David Swenson: The governor's proposal like that to try to get things moving in the state's economy by bonding, borrowing money, however we pay for it, but bonding and borrowing money to improve on the state's critical infrastructure, roads, bridges, schools and then all of the projects that Tom talked about as well, that very well could help the economy weather this downturn by stimulating jobs in the construction sectors and in the supplying sectors and helping to stabilize the economy at a time when everything is moving in the other direction.
Paul Yeager: Tom Stanberry, would you put money up on some of these projects that are being talked about?
Tom Stanberry: Well, I think some of the projects that Tom mentioned if they are projects that can be constructed in that time period, they are ready projects to go and we're matching assets and liabilities. I think the key to the governor's proposal to use $700 million of bonding capacity is match assets and liabilities. Let's not engage in long-term financing for some short-term life projects. I think banks would be involved in a lot of that financing.
Paul Yeager: So do you think the bonding plan is a good idea?
Tom Stanberry: It remains to be seen. I think you have to flush out some of the details, we have to look across, we have to look at what can the gaming industry sustain in an economy like this. The gaming industry is obviously not recession proof, we've seen that in some of the numbers that have come in from nationwide gambling. But that is a strong source of revenue.
If the cost of this program actually produces sustainable projects -- I was encouraged when Tom said we're looking for sustainable projects. That to me means a project that has a useful life consistent with the liability we're taking on.
Paul Yeager: You're looking for more than just a simple sewer project but a much larger project.
Tom Stanberry: I think we would be looking at sewer projects. I think if you look at the infrastructure of the state of Iowa sewer and water are two very critical needs that we have in the state so yes because those have long useful lives.
Paul Yeager: Tom Hart, what do you think of that?
Thomas Hart: Well, again, they're looking at long-term improvement so invest this money and you'll have something greater at the end of that and I think all of that is to be negotiated out in the next number of weeks or months but I think that is a critical criteria.
The other thing is, you know, the ink isn't dry yet on the federal package and I think we're all looking at what are the elements of the federal package. And this is a puzzle and it is pieces of the puzzle that fit together.
So, what can be helpful to the federal package? How can these work together in, again, long-term goals to benefit Iowa and benefit Iowa in the long-term?
Paul Yeager: What other outside forces on that puzzle and making up some of those puzzle pieces are we looking at?
Thomas Hart: Well, certainly the disaster relief money for eastern Iowa is also a part of that. So, there are a lot of elements that are at play here in trying to get a program that will best serve the whole state of Iowa.
Paul Yeager: And Cedar Rapids and Iowa City and Oakville have long been talking about they need money now in addition to the stimulus but if we don't turn that area, specifically Cedar Rapids, Iowa City, around the state is probably going to be sputtering for a little while.
Thomas Hart: But one of the things that the governor and lieutenant governor have said, we don't want to just rebuild, we want to do it better, we want this to be better than it was. And so that is the whole element of sustainability and the greenness that they're looking for in projects.
Paul Yeager: David, you've talked about weatherizing and retrofitting some public building. That would be a way on a front to make them sustainable and try to cut expenses.
David Swenson: It certainly would. Anything that you can do to make government more efficient, to more effectively provide public goods and services, again, whether it's just roads that work right, whether it's wastewater treatment systems that are effective and efficient as well as weatherizing buildings, the green stuff that they talk about. All of those things they do two things. One, they make government more efficient, they reduce our carbon footprint, they put people to work and they allow basically a better quality of life down the road.
Paul Yeager: I know you don't know what the 5000 projects look like but if you could pick maybe five projects ideally that would be best to jump start the state where would you see the best five would be?
David Swenson: I would be so boring, I would be so boring. I come from the school that believes governments should do what governments to best which is roads, bridges, sewers, water, all those basics, schools, basic infrastructure. A lot of people like to talk about bold ideas and initiatives and thinking outside the box. I want my public leaders to think inside the box and do what they do best right now.
Paul Yeager: I'm going to ask you the same question here in the final couple of minutes.
Tom Stanberry: My answer is going to sound pretty similar. I would look at infrastructure. I think you have to look at roads, bridges, waters, park systems, you have to build back the infrastructure of the state and that's where I would spend the money.
Paul Yeager: What about some of your rural members that are in the banking association. You have some in Sioux Center, some in the northwest part of the state, a little more biotech, a little more advanced thinking. Is that an encouraged area for a region that would work to put money into there?
Tom Stanberry: I think the state could certainly put seed money there but if those projects actually are viable projects that will work private capital will come into that area at some point. The state might put seed money in to get it started and then let private capital show up. But, again, I look at a project -- if I'm looking at a $700 million project for the state of Iowa I would make sure that the state has replaced its infrastructure, has done something for its citizens, clean water, good sewer system and improve our parks, all the things that make Iowa a great state.
Paul Yeager: David, the things they're talking about, can that in the long-term make a big difference?
David Swenson: It makes a big difference in the overall quality of life in a state, it undergirds your capacity to grow, your value of your community is a function of the public assets plus the private assets and that they're not too expensive to maintain so there's that elegant balance. So, having the right balance matters but not having enough of critical assets weighs against you terribly.
Paul Yeager: Tom Hart, I'll give you 30 final seconds here, timetable. Is this something that is going to come state wise before the end of the session you think to get the green light to move forward?
Thomas Hart: Oh, absolutely. The governor called for the $700 million in his State of the State Address. There are discussions going on now between the legislature, legislative leaders and the governor to put a package together. So, it's a priority of this session.
Paul Yeager: Very good. Tom Hart with the Iowa Department of Economic Development, thank you for stopping by, Tom. And also Tom Stanberry, chairman and CEO of West Bank in West Des Moines and also chairman of the Iowa Bankers Association, thank you. And David Swenson of Iowa State University, an economist up there, thank you gentlemen for our discussion.