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Should the Iowa Values Fund Be Resurrected? PDF Print E-mail
News/Features - Feature Stories
Tuesday, 20 July 2004 18:00
Nobody expected it to happen this soon, but the Iowa Values Fund is up for its first performance evaluation, and the results are mixed. The program – which was supposed to attract high-paying positions in natural areas of growth for Iowa such as agriculture – has brought new jobs, but not nearly as many as promised.

Late last year, Iowa Department of Economic Development (IDED) Director Michael Blouin told the River Cities’ Reader that his goal for the Iowa Values Fund was to create 50,000 jobs over five years. He also said he welcomed a de facto probationary period, in which the seven-year, $503-million program only had $100 million total funding for two years.

“Don’t feel stuck to this,” he said. “If it isn’t working drop it.” (See “Iowa Values Fund Faces Tough Road, but Director Welcomes the Challenge,” River Cities’ Reader Issue 450, November 5, 2003.) At that point, it looked as if the Iowa legislature would need to revisit the Values Fund financing system early in 2005.

But last month, the Iowa Supreme Court threw out the law that created the Iowa Values Fund. The court ruled that Governor Tom Vilsack unconstitutionally used the line-item veto last year to eliminate parts of House File 692.

In addition to the Iowa Values Fund, the bill included Republican-favored regulatory- and tax-policy changes, such as capping punitive damages in lawsuits and making changes to the state’s workers’ compensation system. The goal of the Republican-controlled House and Senate was to force the governor to enact business reforms he didn’t support as a trade-off to get the Iowa Values Fund.

Vilsack tried to use his line-item veto on the legislation to excise the parts of the bill he didn’t like, but the Iowa Supreme Court ruled that the legislation was not an appropriations bill and therefore was not eligible for the line-item veto.

Republicans had only wanted the line-item vetoes invalidated, and both parties were surprised when the Supreme Court scrapped the entire bill, thus putting the Iowa Values Fund into legislative limbo.

The court’s decision created an urgency among the leadership of both parties to ensure that the Iowa Values Fund continues. Of particular importance is authorizing funding for the more than $56 million the Iowa Values board has so far agreed to award 36 companies for economic-development projects. (See sidebar.)

But the governor and legislators should look at this as an opportunity to evaluate the Iowa Values Fund after a year in operation. Even by the IDED’s generous standards for job-creation, the Values Fund hasn’t met the measurable goals that Blouin set last year.

First-Year Performance

The Iowa Values Fund was created to guide Iowa’s economy into new, lucrative areas that matched or played off the state’s natural strengths: life sciences, information solutions, and advanced manufacturing. While the rules don’t require that projects be in those areas, they do state a preference for them, so long as that does not exclude other types of businesses. Companies of all sizes and ages are eligible for awards.

To date, $51.6 million has been awarded to 18 companies under the Iowa Values Fund rules. In addition, $4.7 million from the fund has been used to finance projects in two other state programs: Community Economic Betterment Account (CEBA) and Value-Added Agricultural Products & Processes Financial Assistance Program. The latter program clearly matches the Iowa Values Fund’s target industries, while CEBA is more of a general business-assistance fund.

The Iowa Values Fund has been “more successful that anyone had imagined,” said Tina Hoffman, a spokesperson for IDED.

One measure of success for Hoffman is the increase in “active prospects” the state has. In January 2003, she said, the state had 51. Now, it has 356. “You can just see that number increase month by month,” she said.

That certainly shows that interest in Iowa has grown, or at least that the state is working harder to secure prospects. But it doesn’t reflect actual results.

The number that the Iowa Department of Economic Development is using to tout the success of the Values Fund is 11,000 jobs. That’s the figure that a pair of local legislators – Democrat Jim Lykam and Republican Jim Van Fossen – used when asked what the Values Fund accomplished in its first year. And on the surface, that more than meets the standard of 10,000 jobs annually that Blouin’s 50,000-new-jobs-in-five-years goal suggests.

Well, maybe not. The 11,000-jobs figure comes with a lot of caveats and explanations. If you want to know how many new jobs the Iowa Values Fund has brought to Iowa, the answer is 4,236, and nearly two-thirds of those won’t be showing up for at least a year.

Here’s how the math works, based on numbers sent out last week by IDED:

• The IDED calculation of 11,000 jobs includes leveraged jobs, meaning that Iowa Values Fund money might be part of a larger financial-assistance package given to a business. If you subtract jobs that aren’t directly the result of Iowa Values Fund contributions, you’re left with 7,496 “project jobs.”

• That figure does not reflect new jobs. Of those “project jobs,” 3,260 are “retained” and 4,236 are “created.” In fact, two Iowa Values Fund projects – Lennox Manufacturing ($6.6 million of state money) and Fort Dodge Animal Health ($3.5 million) – involve only retained jobs.

The trouble with economic-development programs that count job retention is that there’s no way to know whether those jobs were seriously at-risk. While new jobs are easy to quantify, identifying retained jobs is largely a matter of trust. Hoffman said that the state has done its homework and has “some sense of the validity of those things,” but skeptical people will continue to question those numbers.

“We know they [companies that got awards] were dealing with other states,” said Jim Hancock, a member of the Iowa Values Fund board as well as the Scott County Board of Supervisors. “Our staff did an outstanding job of researching that stuff.”

• Of the 4,236 new jobs, only 1,432 will be on-line in Fiscal Year 2005, which runs through June 30. Companies report their job numbers annually, and Hoffman said that companies are contractually obligated to create and retain the jobs they say they’re going to. Still, the state wants to be flexible, she said. “We work with companies to some extent to make sure they’re on track,” she said. Although each contract is different, generally companies that don’t meet their job-retention and -creation targets will have to give back a portion of their awards. For instance, if a company only creates half the jobs it says it will, it must give half its money back.

Obviously, the Values Fund was new last fiscal year, and it’s unreasonable to expect it to be full-speed after only 12 months. But the IDED’s own numbers show that the Iowa Values Fund didn’t even get halfway to the 10,000-new-jobs-a-year goal. (Blouin was out of the country and unavailable for comment for this article, Hoffman said late last week.)

In addition to issues of job-creation, the Iowa Values Fund’s first year also raises questions about whether the entire state is benefiting. More than three-quarters of the Iowa Values Fund money is going to projects in five counties: Polk ($12.2 million), Story ($9.7 million), Sioux ($9.1 million), Marshall ($6.7 million), and Johnson ($5 million). The remainder of the money went to 17 counties. Scott County has received one award: Autotech Technologies in Bettendorf got $140,000 as part of a post-fire expansion.

“The rural communities don’t think they’ve gotten their fair share,” Lykam said. And while he doesn’t necessarily agree with that assessment, that perception could become important as the legislature grapples with whether and how to finance the Iowa Values Fund. “If you don’t get those [rural] votes, this is going nowhere,” he said.

He also said he’s “comfortable” with the one-year performance of the Iowa Values Fund. “I don’t think this is a thing we can turn around overnight,” he said of the state’s economic and population trends. “It’s hard to read how successful we’re going to be. … We’re moving in the right direction.”

“It’s always the big fish who seem to get the initial attention,” said State Representative Cindy Winckler, a Democrat from Davenport. Large companies and communities “already have the existing synergy,” she said.

That complaint was echoed by Representative Joe Hutter, a Republican from Bettendorf. Hutter said he was “displeased with some of the funds that went to major companies that don’t need them.”

But Hancock said Wells Fargo, which got $10 million to create 2,000 jobs, lent the program immediate credibility. “Wells Fargo jump-started the Values Fund,” he said. He added that the company is so large that if Iowa doesn’t provide incentives, it will go somewhere else. “Those jobs they can put in any state they want to,” he said.

When told about Blouin’s job-creation target and the Iowa Values Fund performance, and then asked about her thoughts on the Iowa Value Fund’s first year, Winckler said she’s reserving judgment. “I don’t have a good answer for that right now,” she said. “We have to be vigilant about not funding those projects that would happen without our assistance.”

And these first-year projects? “I think they could have moved forward” without state help, she said. “They were the ones that were on the table at the time.”

Lykam said that the state might need to provide more assistance to rural areas to get them involved in the Iowa Values Fund; they can’t piggyback on the state’s larger metropolitan areas. “We can’t support the rest of the state,” he said.

Given time, Winckler said, smaller communities will be able to form community alliances and will be able to vie for Values Fund dollars. “We have to be patient,” she said.

That means establishing a funding mechanism for the Iowa Values Fund, though. “We have to have some framework for the future – stable components” so that interested companies know the money will be available. “We need to give them more tools,” Winckler said.

What Next?

Two key issues face legislators in terms of the Iowa Values Fund. The first – and most pressing – is how to ensure that the state follows through on the $56 million the Iowa Values board has already committed. Of that amount, the state has actually dispersed just less than $6.5 million, with $5 million of that going to Wells Fargo. There’s nothing the state can do to recover that money, even though the legislation authorizing it was ruled unconstitutional.

The remaining awards aren’t really at-risk, but it could take some creative financing. “Everyone has acted in good faith to make these awards,” Hoffman said. “These are commitments that have been made that will be honored.”

Van Fossen agreed. “I would definitely vote to keep the commitment,” he said.

The larger question is whether and how the Iowa Values Fund will be sustained after that.

Winckler said that because so many of the state’s reserve funds have been depleted, she’d favor a bonding element to jump-start the fund.

But Van Fossen countered that if the program is so important, financing ought to come from the state’s general fund. He also expressed a philosophical problem with the Iowa Values Fund. “I don’t think it’s government’s place to pick winners and losers in the business industry,” he said. Van Fossen added that he thinks the state would be better-served by enacting tax cuts and regulatory reforms to improve the state’s business climate.

Nobody seems intent to kill the Iowa Values Fund, but nobody seems very interested in throwing money at it, either. Legislators were told last week to be ready for a special session on short notice, but an agreement between the Republican legislative leaders and the governor does not appear imminent. Republicans remain adamant that regulatory changes should accompany any re-authorization of the Iowa Values Fund, while Vilsack is still resisting.

In the meantime, the governor is exploring whether he can somehow get around the legislature to fund the Values Fund commitments. “He’s got broad powers when we’re out-of-session,” Lykam said.

Sidebar: Iowa Values Fund Awards
Wells Fargo & Company, Des Moines, $10,000,000, 2,000 jobs created
Trans Ova Genetics, Sioux Center, $9,000,000, 235 jobs created
Lennox Manufacturing, Marshalltown, $6,600,000, 1,118 jobs retained
New Link Genetics Corp., Ames, $6,000,000, 35 jobs retained, 315 jobs created
Integrated DNA, Coralville, $5,000,000, 207 jobs created
Phytodyne, Inc., Ames, $3,500,000, 5 jobs retained, 78 jobs created
Fort Dodge Animal Health, Inc., Fort Dodge, $3,500,000, 1,041 jobs retained
Wells’ Dairy, Inc., LeMars, $2,928,000, 346 jobs retained, 129 jobs created
Omaha Standard, Inc., Council Bluffs, $1,500,000, 182 jobs retained, 108 jobs created
Gcommerce, Inc., Des Moines, $1,000,000, 157 jobs created
Lighthouse Communications, Des Moines, $723,000, 38 jobs retained, 81 jobs created
Red Star LLC, Cedar Rapids, $500,000, 80 jobs created
Info USA Marketing, Inc., Carter Lake, $455,000, 12 jobs retained, 123 jobs created
Golden Grain Energy, Mason City, $400,000, 32 jobs created
Midwest Renewables, LLC, Iowa Falls, $400,000, 33 jobs created
Amaizing Energy Cooperative, Denison, $400,000, 1 jobs retained, 35 jobs created
RC2 Brands, Inc., Dyersville, $400,000, 168 jobs retained, 16 jobs created
American Pallet Leasing, Rock Valley, $400,000, 166 jobs created
Professional Computer Systems, Denison, $329,000, 20 jobs retained, 27 jobs created
Protocol Driven Heathcare, Inc., Des Moines, $320,000, 48 jobs created
MCGlobal Corporation, Fort Madison, $300,000, 45 jobs created
Arrow Acme, Inc., Webster City, $300,000, 84 jobs retained
McKesson Corporation, Dubuque, $298,000, 74 jobs created
BIOwa Nutraceuticals, Cherokee, $250,000, 11 jobs created
Midwest Bio Energy Ltd., Clinton, $250,000, 5 jobs created
West Central Cooperative, Ralston, $250,000, 6 jobs created
NovaScan Technologies Inc., Ames, $200,000, 4 jobs retained, 25 jobs created
Chapman Lumber, Sand Springs, $200,000, 48 jobs retained, 30 jobs created
Environmental Lubricants Manufacturing, Inc., Plainfield, $200,000, 9 jobs retained, 17 jobs created
Blue Ridge Paper Products, Inc., Clinton, $150,000, 46 jobs created
Autotech Technologies LP, Bettendorf, $140,000, 40 jobs retained, 30 jobs created
Medline Industries, Inc., Dubuque, $125,000, 41 jobs created
Catalyst International, Sioux Center, $125,000, 6 jobs created
Data Builder, Inc., Des Moines, $116,000, 5 jobs retained, 16 jobs created
Eden Farms, State Center, $60,000, 2 jobs retained, 1 jobs created
Hoffman, Inc., Muscatine, $45,000, 2 jobs retained, 13 jobs created
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