Largely because of our proximity to tax friendly South Dakota, we in northwest Iowa have a unique understanding of and appreciation for the importance of state economic development assistance.
In its 2013 State Business Tax Climate Index, the Tax Foundation ranks South Dakota number two in the nation; Iowa, 42. This ranking speaks volumes about the challenges our local and regional economic development professionals face each and every day with respect to growing the economy in our corner of Iowa.
Including state economic development assistance as part of a package of incentives was key to the $1.7 billion expansion by CF Industries of its Port Neal fertilizer plant and the $26 million, two-phase local expansion by Sabre Industries. From capital investment to job retention to job creation, including construction jobs, one cannot overstate the importance of these projects to our local economy.
“The city of Sioux City’s successful effort to retain Sabre Industries, in a hyper-competitive, multi-state selection process, is an outstanding example of how both local and state economic development incentives can be used to leverage private capital investment and create hundreds of new jobs,” Siouxland Chamber of Commerce President Chris McGowan told us.
McGowan said incentives typically are introduced to negotiations late in the process.
“When necessary,” he said, “they can be used to level the playing field and help bring jobs, capital investment, and economic opportunity to our communities.”
Understandably, large incentives for major projects grab headlines, but state assistance supports many smaller northwest Iowa projects, as well. One key tool for a border region like ours is the Targeted Jobs Program. Renewed by the Legislature in May for five years, it allows qualifying businesses to apply for state withholding tax credits if they plan to relocate or expand in Iowa, provided they are creating or retaining jobs. According to a December 2012 report by the Iowa Economic Development Authority, 39 projects worth $37.6 million qualified for the program statewide from fiscal year 2007 through fiscal year 2012. Sioux City had the largest total awards at $12.9 million and the highest number of projects at 27.
Also, while incentives for the $1.4 billion Orascom Construction Industries project in Lee County continue to stir controversy, it’s important to remember the lion’s share of assistance provided by the state Economic Development Authority goes to companies located in Iowa.
We acknowledge reasonable questions exist about the Orascom deal and others. The Branstad administration absolutely must do proper homework before offering incentives and should be able to explain and justify their use. Still, we are comfortable with an overall aggressive, competitive strategy by the administration with respect to incentives, and we believe this approach is paying dividends — not simply for Northwest Iowa, but for all of Iowa. As a whole, our state appears to be on the right track.
Until this state dramatically improves its overall tax environment for business (property tax reform passed by the Legislature this year was a positive step in the right direction), incentives — sometimes big incentives — will be a fact of life if we want success within the intensely competitive arena of economic development.
Professionals will tell you this: Economic development incentives cannot make a bad deal good, they can only make a good deal better. In other words, the state of Iowa must have many other key pieces in place first: a favorable regulatory climate, land, transportation infrastructure, competitively priced natural gas and electricity, municipal utilities, high-speed communication networks, strong educational institutions, and a skilled and available labor pool.
Generally speaking, if economic development incentives build on what we have and help push a project over the finish line for Iowa, then we believe the money was well spent.