Iowa's massive economic-development boost is starting to look a lot more modest.
The Iowa Values Fund was originally pitched as a $500-million state investment focusing on three core areas: life sciences, information solutions, and advanced manufacturing. But when the Iowa legislature approved the program this year, its funding was based on sales- and use-tax targets that, according to current trends, don't look realistic right now.
The seven-year, $503-million program could end up with less than 20 percent of that intended money at its disposal, yet the head of the Iowa Department of Economic Development sounds unfazed about that prospect. He argues that the funding situation requires that the program prove its worth to legislators, and he sounds like he relishes that prospect.
Basically, unless state sales-tax receipts improve dramatically, the legislature is going to have to re-work the Iowa Values funding mechanism in 2005 to provide the board the money it expects to have. Michael Blouin, the director of the Iowa Department of Economic Development, told the River Cities' Reader early last month that if the program hasn't proved its worth, the legislature can kill it by not allocating funds. "Don't feel stuck to this," he said. "If it isn't working, drop it."
Conversely, if it does work, you can expect the legislature to do everything in its power to fund the program. Creating high-paying jobs to attract and retain young people to Iowa is such a major priority that any program that shows success will get the money.
So for the time being, Blouin is focusing on the money the program does have. "We've got $100 million we know we're going to get," he said. "We're going to make this work for 18 months."
Already, the Iowa Values Fund board has committed almost $20 million to three business-development projects. Wells Fargo received $10 million for a Des Moines-area expansion that will include 2,000 new employees, New York-based GCommerce received approximately $1 million to create 157 jobs in Des Moines, and Trans Ova Genetics received $9 million to create 315 jobs in Sioux Center. The state is spending $5,000 per job for the Wells Fargo deal, $6,400 per job with GCommerce, and $29,000 per job with Trans Ova. The first award came in July, while the other two were approved in August.
For the most part, that money comes from the $100 million in federal dollars the state is receiving in the first two years of the Iowa Values program. From those funds, the board has committed $18.6 million to the three above projects. And the board voted last month to commit $10 million of the $100 million in the first two years to the state's three major public universities. Another $15 million was set aside "as funding becomes available."
What that means is that nearly $30 million of the $100 million guaranteed to the Iowa Values Fund is already spent.
Funding for the Iowa Values program beyond the second year is meant to come from the growth of sales- and use-tax receipts. Anything above 2-percent growth goes to the Iowa Values Fund, and that is meant to include sales tax from Internet purchases. If the state is able to collect that tax, it expects to bring in an additional $72 million a year by Fiscal Year 2007.
The trouble is that sales taxes have grown by approximately 1 percent this year, and the collection of Internet sales taxes would require federal legislation to force retailers to charge it. Blouin said there's a consortium of more than 20 states working on the issue.
Yet even if taxes on Internet purchases do come in, they might not meet state targets. "If we get $50 million of it [a year], I'd be delighted," Blouin said. In other words, the $503-million Iowa Values Fund is likely to actually be a lot smaller, even in a best-case scenario.
In January 2005, Blouin and the legislature will have a better idea of what - if any - sales-tax revenue will be available for the Iowa Values Fund. If no money is available, the legislature will have two options: dedicate a different revenue stream for the program or let it die.
Even if legislators give the program new life in 2005, it could still be on something like probation; the Iowa Values Fund only has an allocated line item for four years, meaning that it will essentially be up for review again in January 2007.
These short intervals between key funding decisions have allowed Blouin to put the onus on the legislature to evaluate the program's success or failure. While there are guidelines for spending the Iowa Values Fund money, those goals aren't necessarily part of the final rules the board adopted last month. For example, the legislation creating the Iowa Values Fund specifies that the money should be allocated to projects in five different regions of the state. But "you've got to go where the projects are," Blouin said. If the legislature isn't happy with the distribution of money, it can cut off funding.
Blouin said a month ago that 160 projects are seeking assistance from the state, including roughly 20 on the "front burner." Not all those projects, however, meet the Iowa Values Fund criteria. "This is a very dynamic type of list," Blouin said of the "front-burner" items. "It's different today by half a dozen than it was last week. ... It's not an ordered list. We've got to be able to move with them."
Blouin said he expects the Iowa Values Fund to generate 50,000 jobs over five years. And those must be jobs beyond what the economy naturally creates. "It ought to be tough," he said. "We're playing with public money."
The seven-year, $503-million program could end up with less than 20 percent of that intended money at its disposal, yet the head of the Iowa Department of Economic Development sounds unfazed about that prospect. He argues that the funding situation requires that the program prove its worth to legislators, and he sounds like he relishes that prospect.
Basically, unless state sales-tax receipts improve dramatically, the legislature is going to have to re-work the Iowa Values funding mechanism in 2005 to provide the board the money it expects to have. Michael Blouin, the director of the Iowa Department of Economic Development, told the River Cities' Reader early last month that if the program hasn't proved its worth, the legislature can kill it by not allocating funds. "Don't feel stuck to this," he said. "If it isn't working, drop it."
Conversely, if it does work, you can expect the legislature to do everything in its power to fund the program. Creating high-paying jobs to attract and retain young people to Iowa is such a major priority that any program that shows success will get the money.
So for the time being, Blouin is focusing on the money the program does have. "We've got $100 million we know we're going to get," he said. "We're going to make this work for 18 months."
Already, the Iowa Values Fund board has committed almost $20 million to three business-development projects. Wells Fargo received $10 million for a Des Moines-area expansion that will include 2,000 new employees, New York-based GCommerce received approximately $1 million to create 157 jobs in Des Moines, and Trans Ova Genetics received $9 million to create 315 jobs in Sioux Center. The state is spending $5,000 per job for the Wells Fargo deal, $6,400 per job with GCommerce, and $29,000 per job with Trans Ova. The first award came in July, while the other two were approved in August.
For the most part, that money comes from the $100 million in federal dollars the state is receiving in the first two years of the Iowa Values program. From those funds, the board has committed $18.6 million to the three above projects. And the board voted last month to commit $10 million of the $100 million in the first two years to the state's three major public universities. Another $15 million was set aside "as funding becomes available."
What that means is that nearly $30 million of the $100 million guaranteed to the Iowa Values Fund is already spent.
Funding for the Iowa Values program beyond the second year is meant to come from the growth of sales- and use-tax receipts. Anything above 2-percent growth goes to the Iowa Values Fund, and that is meant to include sales tax from Internet purchases. If the state is able to collect that tax, it expects to bring in an additional $72 million a year by Fiscal Year 2007.
The trouble is that sales taxes have grown by approximately 1 percent this year, and the collection of Internet sales taxes would require federal legislation to force retailers to charge it. Blouin said there's a consortium of more than 20 states working on the issue.
Yet even if taxes on Internet purchases do come in, they might not meet state targets. "If we get $50 million of it [a year], I'd be delighted," Blouin said. In other words, the $503-million Iowa Values Fund is likely to actually be a lot smaller, even in a best-case scenario.
In January 2005, Blouin and the legislature will have a better idea of what - if any - sales-tax revenue will be available for the Iowa Values Fund. If no money is available, the legislature will have two options: dedicate a different revenue stream for the program or let it die.
Even if legislators give the program new life in 2005, it could still be on something like probation; the Iowa Values Fund only has an allocated line item for four years, meaning that it will essentially be up for review again in January 2007.
These short intervals between key funding decisions have allowed Blouin to put the onus on the legislature to evaluate the program's success or failure. While there are guidelines for spending the Iowa Values Fund money, those goals aren't necessarily part of the final rules the board adopted last month. For example, the legislation creating the Iowa Values Fund specifies that the money should be allocated to projects in five different regions of the state. But "you've got to go where the projects are," Blouin said. If the legislature isn't happy with the distribution of money, it can cut off funding.
Blouin said a month ago that 160 projects are seeking assistance from the state, including roughly 20 on the "front burner." Not all those projects, however, meet the Iowa Values Fund criteria. "This is a very dynamic type of list," Blouin said of the "front-burner" items. "It's different today by half a dozen than it was last week. ... It's not an ordered list. We've got to be able to move with them."
Blouin said he expects the Iowa Values Fund to generate 50,000 jobs over five years. And those must be jobs beyond what the economy naturally creates. "It ought to be tough," he said. "We're playing with public money."
