Selling Iowa. State leaders partnering with communities beckoning business and industry into Iowa. A conversation with Partnership for Economic Progress Director Debi Durham and Greater Des Moines Partnership's David Maas ... and a reporters' roundtable update on politics and legislation at the Iowa Statehouse. It's all on this edition of Iowa Press.
Borg: A couple of weeks ago we opened our Iowa Press program commenting that when it comes to economic development some might say it's a jungle out there. In our society, where jobs are at a premium, states are competing for investors willing to set up a business and start hiring. Even within Iowa communities are working often against each other for payrolls and tax-base that goes with industrial development. But some are asking if tax breaks and other incentives are excessive. In fact, two weeks ago on this program, the Iowa Senate's Ways and Means Committee Chair, democrat Joe Bolkcom of Iowa City, said just that, directing that criticism to Iowa's Economic Progress Director Debi Durham. She's one of our guests today alongside David Maas, the Economic Development Vice President for Greater Des Moines Partnership. Welcome to Iowa Press.
Maas: Thank you, it's a pleasure to be here.
Durham: Very much so.
Borg: And Ms. Durham, you were in much the same job in Sioux City before coming to state government.
Durham: I've got many years of experience of economic development under my belt at a community level and now at the state level.
Borg: And we'll be asking about that. Across the table, James Lynch who is a Political Writer for the Gazette published in Cedar Rapids and Radio Iowa News Director Kay Henderson.
Henderson: Ms. Durham, if you could, tell us about selling Iowa. How tough a sell is it? And what is the greatest impediment when you're out there talking with Iowa businesses trying to encourage them to expand or businesses out of state trying to get them to come here?
Durham: Well, the thing that we always start with is really the fiscal management of our state. When you look at that we have nearly a $1 billion surplus that actually is an enviable position for many states that we compete with. So we start there with our fiscal management. And then we talk about our workforce because they're looking for a highly skilled workforce. And then we begin to talk about the cost of doing business here. They, you know, depending on where you're located and depending on what your product line is, you know, our income tax can either be a blessing or an impediment meaning if you sell most of your product out of the state then obviously a single factor corporate income tax works well. However, if you don't and you sell within a supply chain as we heard with the fertilizer plant and other projects, you're put at a competitive disadvantage, property taxes and other issues that we hear often about. However, even with all of those things, Iowa is able to make a valued proposition in many cases.
Lynch: You mentioned the property taxes as an impediment. When you were testifying at the Capitol earlier this legislative session you talked about personal and corporate income taxes being impediments to economic development. Are we aiming at the wrong target here with property tax reform? We should be looking at income tax and corporate tax reform?
Durham: Well, actually the reason I was talking about the income tax there because we were dealing with the incentives that work around income tax which is the investment tax credit. However, I think the Governor made the right decision in the fact that you only have so much capacity. Though we are in this enviable position of having a $1 billion surplus or near, the problem is that we also need to do some investing and that means in education. So we know we're going to be spending in education. We also know that though we're in a good place, the federal government is not. And so we need to leave so much in reserve to make sure that when those bills get passed down to the federal government we can pay them, Medicare, Medicaid. And then thirdly, if you have capacity you have to decide where can you get the best return? And we have a divided House and there seems to be a bipartisan support for property tax reform, unlike income tax reform. So some of it is just simply a pragmatic agenda. The other thing --
Borg: Bring him in because she said property tax, you heard what she said, what about property taxes? Impediment?
Maas: It is, it is -- it's one of the areas that we our costs for doing business are a little higher than other states. So it is a challenge in that regard and right now it's not an equitable system when you look at commercial, industrial versus residential. So -- so the partnership supports, you know, commercial and industrial property tax reform but, you know, it needs to be done thoughtfully so we have revenue and alternative sources for local governments and backfill from the state.
Borg: Well if you could add just one tool to your toolbox for economic development what would it be? What do you need?
Maas: Well, I think maintaining our current tools are very important. We do need to increase our, the cap on our investment tax credits. That's probably the one thing that we need to get done this session is increasing the amount of dollars and resources we have allocated for our income tax credits which help a variety of companies from small companies to large, tax credits, R&D jobs, it just helps provide for a robust economy to help stimulate that growth.
Henderson: Let's talk about, Ms. Durham, this issue of corporate taxes and property taxes, that whole debate. As you go out and sell the state, don't executives say, gosh I'm not moving there because of the income taxes as opposed to the property taxes?
Durham: It depends. Actually where we see the most pushback on income tax is at the personal level. And if you look at a lot of the companies are organized as S Corps or LLC's, which actually hits the startup community in that mid-size level of companies where you see the greatest growth potential the most. So they are more concerned about the personal side. Again, the corporate is only concerning if you are in the state selling your product primarily in the state.
Henderson: And Mr. Maas, the Governor of Nebraska is talking about cutting income taxes, in Kansas they have already taken steps. How does that affect your sales job?
Maas: Well, we've got a great product to sell here. Our cost of doing business, as Debi mentioned earlier, is below the U.S. average in the Des Moines area. Our cost of doing business is 17% below the U.S. average. So taxes are one part of that but you look at energy cost, we've got some outstanding energy providers here, MidAmerican Energy, our rates here in the Des Moines area are probably 30%, 35% below the national average. So you roll all those cost of doing business factors together, we've got a very strong case to be made that Iowa is a great place to grow.
Borg: You alluded to it a minute ago and that is Senator Joe Bolkcom and the fertilizer plant in southeast Iowa. There has been specific criticism, as I said in the introduction, of state incentives given to an Egyptian-based company that is called Orascom to get a fertilizer plant to be built in Lee County, that is down in extreme southeast Iowa, and state Senator Joe Bolkcom, a democrat from Iowa City, said this on Iowa Press.
Iowa Press - March 1, 2013 - Senator Joe Bolkcom: Lee County has been particularly hurt by the recession, these are important jobs to bring to the state. But I think in the case of Orascom and the negotiations here we put way more money on the table than we needed to. There are federal incentives worth more than $300 million that were not taken into consideration in my judgment.
Iowa Press - March 1, 2013 - Borg: Just particularly critical of that particular incentive.
Iowa Press - March 1, 2013 - Senator Joe Bolkcom: I'm particularly critical of this economic, this specific economic deal and think that we have given away the farm on it.
Henderson: Ms. Durham, were you snookered as some of the senators allege?
Durham: I was not. And actually when you see the entire case before you, you would agree that it was not. We were in competition with Illinois and competition just beyond incentives, as the Senator alludes to. We were in competition because actually they had a preferred site and from a logistics point of view was actually more preferred as far as the cost of operation. So no, I do not believe we were snookered and it's like I said to the Senator, you know, I negotiated that deal, I stand behind that deal, I did -- and if you look at it by their own code we were allowed to do 10% into that deal from an investment tax credit. I don't set the legislation and the parameters of the legislation. We negotiate every deal and there's less -- 8% into that. So we stayed within in the code.
Borg: This is political grandstanding then by Joe Bolkcom?
Durham: I think it was political theatre what we saw. First of all, legislators have every right to hold me accountable for how I'm using the tools in which they give. Now, what they also didn't tell you was this, that prior to that deal ever being made I called Senator Bolkcom along with the leadership on both sides of the aisle, in fact I called about 35 legislators to say, here's the deal, here's what is happening, I want you to understand the parameters in which this deal was struck. Furthermore, after the deal was announced we sent a release out to every legislature and the media with all the details of the deal, full transparency around this. So I do believe what occurred at that committee was more about political theatre than it really was whether this was a good deal or not.
Lynch: There is some question whether you set the bar too high by offering $100 million in tax credits and whether there's going to be enough to attract other economic development prospects, I think the $70 million in tax credits to CF Industries located in Sioux City and now there's talk about another fertilizer plant, a Turkish company, up in Mitchell County and the state's offer is apparently $35 million. Do you have enough tax credits to buy these prospects to get them to come here?
Durham: Well, first of all, let's take a step back. The tax credits allocation was $185 million that was backed down during the recession to $120 million. Right now the economy is opening up. Now, we're at a tipping point because you will not see this activity last forever. At the time it was brought down no one anticipated we'd be seeing the size of projects we're seeing, billion dollar projects was unheard of. So what we're saying is restore the cap but keep the cap because if you think about it, in 2006, 2007 and 2008 we didn't even have a cap on our credits. The Department of Revenue will tell you though that 42.5 percent of the tax credits that are allocated in a deal never, ever get claimed for a variety of reasons. So when you look at it in its totality is one deal particularly more rich than another? Absolutely. And that is a fair criticism. But what I said is look at our entire portfolio of nearly $6 billion and if you look at how, for instance, for $6 billion we have eligible, these companies are eligible for $400 and some million of tax credits. We negotiated, totality, $130 some million and if you apply the revenues numbers of 42 point some percent will never get claimed I'm saying we're getting these deals for a bargain.
Lynch: David, Director Durham said we should keep that cap on tax credits. I think earlier you said it should be raised, that you need to see it raised to remain competitive.
Maas: Yeah, and that is raising it from the current $120 million to $185 million, James. That is what we're supporting, raising that cap to what it was before the recession hit.
Henderson: Let's shift to another topic, you are a part of the Iowa Chamber Alliance. That is a group which has in the past and still supports an increase in the gas tax. How do you sell the current transportation system to businesses and at some point will it be a negative?
Maas: Well, we've got a very good transportation system here in terms of our number of class I railroads serving Iowa, some outstanding airports, very pleased about the new service from Southwest which helps us be more competitive, which is important for economic development on fare standpoint. And then our highways and interstate systems are very key. We're part of a, you know, a global economy and we need to be able to move goods and services to ports across the nation and having a good transportation system is important. So the Chamber Alliance as well as the Partnership is in favor of raising the gas tax.
Lynch: When Steven Leath came to Iowa State there was a lot of talk about creating I-35 life science or I-35 corridor similar to the research triangle in North Carolina. What progress has been made on that? How close to reality is that?
Maas: Yeah, the Partnership a couple of years ago, along with the Community Foundation of Des Moines, United Way, other regional partners, embarked upon what we're calling Capitol Crossroads and out of that came 10 or 11 different recommendations, one of which is the formation of a group called the Capitol Corridor. Steve Zumbach, an attorney here at the Belin Law Firm, along with Dr. Leath are co-chairing that. We have hired Flynn Wright, a local PR firm to help develop a brand for the corridor.
Borg: And this is from Ames to Des Moines corridor or what?
Maas: It is, it is basically for central Iowa. Obviously that's probably the area of central Iowa that will probably get the most traction given Iowa State's assets there.
Borg: And what do you want to do with it?
Maas: What we're going to be doing is branding this globally as a bioscience center. That is still yet to be determined, that's what our hunch is. If you look at what we have at Iowa State University and the resources they have in agriculture, engineering and the whole biofuels developing, you know, plants that will take over the petrochemical refineries and you combine that with the industries we have here and if you look globally at the plant science companies around the world all of them have a presence here with DuPont, Monsanto, Syngenta, BSF, you go down the list, we've got a critical mass share in companies like Chemin. We can make a real case that this is the place for bioscience, especially agricultural research and development.
Borg: Ms. Durham, I just wanted to ask, the Revenue Estimating Conference met on Friday and as a comment at that conference they are projecting ahead Iowa's economy the next few months. They say they're looking at ethanol plants in Iowa and the depressed ethanol market right now, ethanol plants being a drag on Iowa's economy. Do you see it that way?
Durham: I don't see it that way. Actually if I had to look into the future I would say you're going to see Iowa's economy do slightly improving and it is but for, but for no one knows what the drought is going to do and but for the labor issue because right now on all indicators we're hitting very strong. On the ethanol side you're looking at second generation, you know, certainly with what DuPont is doing and POET and DSM with cellulosic ethanol and some of the new research that we're seeing some new opportunities in the future in new development in that platform.
Henderson: Will we be seeing your name on a ballot any time in the future? Will you ever run for office again?
Henderson: Why not?
Durham: You know, I did that once. You remember that don't you? And though I don't regret it, it is not something I quite frankly enjoy, it's not what I strive to do. So no, you will not see my name on a ballot.
Borg: And we're going to let you have the last word on that, that no. And thank you very much for being our guests today on Iowa Press.
Maas: Our pleasure.
Borg: We're going to continue now with a reporters' roundtable in just a moment.
Borg: Continuing this edition of Iowa Press we're going to be hearing insight now from reporters covering the Iowa Statehouse -- Lee Enterprises Des Moines Bureau Chief Mike Wiser joins us along with the Gazette's Jim Lynch and Radio Iowa's Kay Henderson. Mike, Debi Durham, you just heard on the first part of the program here, she said it was political theatre that democratic Senator Joe Bolkcom of Iowa City in his comments at the Iowa legislature when Debi Durham was testifying there and he was criticizing her. Is this economic development incentive idea, is it just a political spear that democrats are using against the republican administration?
Wiser: I think it's -- I think it's both. I think you have some true believers. I do believe that Joe Bolkcom thinks there's a different way, a better way to do economic development. I was at a committee meeting with him several weeks, several weeks ago where he passed out an editorial from the New York Times that said, you know, this idea of states competing against states and cities competing against cities is not the way to go. But I also think that they found a topic at least that they think is good to get some political hits on the administration.
Henderson: There are also -- there are also republicans who don't like this idea of picking winners and losers, giving hugs breaks to a single business, they believe that tax policy should apply to everybody and that these deals are not the kind of deals that they would support.
Borg: Three seats on the Iowa Board of Regents. There are two nominees that appear to be in trouble. Tell us about that. They need to be confirmed by the Senate and may not be.
Lynch: They need a two-thirds vote from the Senate so they need 34 votes in the Senate to be confirmed to the Board of Regents. President Craig Lang, who was appointed by then Governor Chet Culver, a democrat, is up for reappointment or reconfirmation, he has been reappointed by Governor Branstad.
Borg: These are six-year terms.
Lynch: Yes and he is definitely in trouble from what everyone says. And then Robert Cramer is a new appointee to the board by Governor Branstad and he is in trouble because of his socially conservative viewpoints that a lot of Senate democrats don't support. And then there's a third, Dr. Sahai from Webster City who has the good fortune of nobody is paying a whole lot of attention to him and seem to think he is a very fine fellow and would make a good Regent. But Craig Lang from what I'm hearing is definitely in trouble and Cramer probably is in trouble. Sometimes this is a lot of bluster in this process leading up to confirmation so we'll have to wait and see how it plays out in the next week or so.
Borg: Mike, why in trouble? Why Craig Lang? He has served six years already. He is president of the Board of Regents. Is that a lightening rod place being president that has brought him to this place where he may not be confirmed for another term?
Wiser: It can be, particularly when you have a republican governor and a democratically controlled Senate. It also can be when you have people thinking that Lang maybe hasn't showed the leadership that he should. In some issues there was a kerfuffle over the deal with the Tom Harkin Institute and Iowa State and whether Lang got the Harkin's angry, I believe.
Lynch: And what I'm hearing from people who are familiar with the Board of Regents and how this Harkin Institute issue has been handled is they're saying this has become sort of personal political and that the Harkin's have told Senate democrats, get rid of Craig Lang.
Henderson: And Lang was at the Statehouse this past week for an hour long hearing during which he admitted he had not read the memorandum that sparked the whole controversy with Senator Harkin. And when he was asked why he didn't read it, he said he didn't like to read bad news. There was an audible gasp in the room at that and that statement alone has really damaged his candidacy.
Borg: It's kind of ironic though because Craig Lang has been one that has been leading and encouraging the universities to develop better relations with Iowa legislators. In fact, the Board of Regents has been complimented on better relations with the Regents, but that is being forgotten right now.
Wiser: Well, I think any time you put yourself out there if you try to engage, sometimes people will engage back and it's not always necessarily what you want to come back. You know, an interesting thing about the Board of Regents is if Craig Lang goes down the person to step in is Vice President Bruce Rastetter, who you would think that democrats might have more problems with Bruce Rastetter, who is a big republican donor, than they would Craig Lang who was appointed by a democratic governor.
Borg: But Bruce Rastetter is not up for appointment again, his term goes on and that is why he would step -- go ahead, Kay.
Henderson: Well, which is why I think Robert Cramer is the person who is here on the hot seat. He is affiliated with the Family Leader, a group that led the campaign against three Iowa Supreme Court Justices who made the decision on same-sex marriage and so I think he is the most vulnerable of the two.
Lynch: I would agree with that, that he's likely to get rejected.
Borg: That is Cramer.
Lynch: Cramer. And I think there are a lot of politics that get played here and as I said earlier there's a lot of bluster. Depending on how far you want to go with, you know, various conspiracy theories I think there might be some democrats who look at Craig Lang and say, he's got some political ambition, he might be a candidate for governor some day, let's rough him up a little bit so that he's got at least one demerit on his resume if he ever decides to run for public office.
Borg: And so you're saying, if I hear you right, that Craig Lang could possibly sneak through and be reconfirmed but Mr. Cramer would be the sacrificial lamb?
Lynch: I wouldn't bet on it if I were Craig Lang, I wouldn't bet on it.
Borg: Mike, is that they way you see it?
Wiser: Well, you know, it's hard to say and one of the things that interests me about this whole debate that we're even having is I think Bill Dix, I think it was Bill Dix who said yesterday, you know, this is Washington style politics what you guys are doing to Craig Lang. But this Regents Board, has it always been this political or is this, you know, is this new? It doesn't seem, from what I've read --
Henderson: Yes, it has been this political.
Wiser: There you go.
Henderson: There was a gentleman named Marvin Pomerantz who was a big donor to republicans including Terry Branstad who was a long-time leader on this board. In the 1980s he did controversial things like sell the campus television station which sparked a lot of controversy in Ames and among Iowa State University alumni. He was not afraid of taking on legislators in public, kind of a bring it on kind of person. And Michael Gartner was on the Board of Regents working on behalf of Governors Vilsack and Culver and he was equally able to be a lightening rod for controversy and seemed to enjoy it even.
Borg: Well, you go back to the Vilsack administration and that's when, in recent years, polarization really began because there was a controversy, especially with the University of Iowa and John Forsythe, head of Wellmark Blue Cross Blue Shield was forced to resign because of a conflict of interest in a dispute with the University Hospitals. And the Regents brought a traveling roadshow down to Iowa City and held an open forum to try to quell at that time the fervor over, on the campus there against the Board of Regents because the president, David Skorton, was, you know, was so harshly criticized that he took off and took a presidency at Cornell University.
Henderson: People feel passionately about these universities, partly because of the sports teams. I mean, there are Iowans who feel passionately about the University of Iowa or Iowa State University and they have no connection other than that they like the Cyclones or Hawkeyes and so I think that percolates into making these jobs more high profile than any other board in state government.
Borg: Mike, education changes were prominent, property tax changes, you might name other high profile things. We don't seem to be getting much done in a session.
Wiser: Well, one of the things that we're looking forward to next week is the Senate democrats, well, the Senate is supposed to pick up their education reform proposal. This is, you had mentioned property taxes, well I think between the two if you could be a betting person that something is going to happen on education reform. It's hard to say if something is going to happen on property tax but we don't know what level something is going to happen on education reform coming up. And we don't know exactly if the House is going to pick up exactly what the Senate wants to --
Borg: But they don't have to get that done but they do, Jim, have to do something on Medicaid before they adjourn. Could that lengthen the session?
Lynch: That's right. And this is a big fight that's going on between the Governor and democrats. Democrats are saying they're not leaving until they get a Medicaid expansion bill passed, the Governor has said he's not interested. I'm betting that they'll find some common ground before the session ends. It may take a long time though.
Henderson: And it may take a long time because republicans are now publicly saying, you know, we don't have to agree to anything, there's no reason that we have to expand Medicaid or expand this existing system called Iowa Cares that provides coverage to about 70,000 Iowans. They say that they really don't have to do anything there. So you have all these competing interests and philosophies that it is making an interesting stew.
Borg: Just a final half minute here. Legislators got involved in the wrestling fever this week.
Henderson: They did indeed. The House and Senate passed resolutions urging the International Olympic Committee to change its position that will cancel wrestling starting with the 2020 Olympics. The person that I think could have the most impact worldwide on this, Dan Gable, a legend in Iowa wrestling, was at the Statehouse this week and, you know, he made the point that this is the one issue on which the United States and Iran agree. They are both wrestling powerhouses on the international scene and they want to see it in the Olympics.
Borg: Thank you for your insights. We'll be back next weekend, another edition of Iowa Press, legislative leaders democratic Senate President Pam Jochum and republican House Majority Leader Linda Upmeyer. Same times, 7:30 Friday night and noon on Sunday. I'm Dean Borg. Thanks for joining us today.