Economic development benefits, costs coming into focus
At the same time Wells Fargo & Co. is finalizing plans for its expansion in West Des Moines, Iowa Department of Economic Development officials are working on a tool to better analyze the value of projects that are receiving state funding.
With the model that’s nearly complete, state officials will have their own measure of the overall benefits and costs of these types of projects before they fund them. Since February, a team of economists has been developing the economic impact model for IDED.
A preliminary look at the Wells Fargo project indicates at least a 3-to-1 return on the $53 million in public dollars that will be invested to bring the company’s expansion project to West Des Moines, said retired state economist Harvey Siegelman, who had led the effort to build the model.
“That’s a very acceptable ratio,” he said.
When the turnover effect – the increased spending and economic activity resulting from the new dollars – is considered, the impact ratio nearly doubles, he said.
Wells Fargo last week formally announced its plans to build an office complex containing at least 900,000 square feet with a minimum taxable value of $118 million in West Des Moines. The company said it expects to invest a total of $250 million in the office campus, with the capacity for that space to double in future years.
The financial services company’s own estimate is that the project will have a $627 million impact on Iowa’s economy over a 10-year period.
At its Oct. 22 board meeting, the Grow Iowa Values Fund board is expected to see preliminary figures plugged into the economic model for each of the three companies it has financed so far. Since July, the board has committed $20 million to three projects, the largest being Wells Fargo.
“I think they’ll all be positive,” said Michael Blouin, director of the IDED. “The most positive part is it will give us a barometer to use on future projects as well, not only on return, but on how far we can go (with incentives). That’s a piece we didn’t have before.”
The model, known as the Iowa Public Impact Index, goes beyond the traditional return on investment model a company would use to assess the viability of a project, Siegelman said.
“(An ROI model) really doesn’t begin to look at the issues a public-sector investment needs to assess,” he said. “For instance, ROI doesn’t look at the impact on the community, impact on the environment, things that a private investor wouldn’t be interested in. That’s why we decided to look at overall impact for the economy.”
The model considers a 10-year horizon for a project, assuming that most bond issues are normally paid off over that time, making tax revenues received after that “the gravy.”
Rather than arriving at one final bottom-line figure, the model assesses a project from several different perspectives, among them the effects on employment, personal income and taxes in the state.
It also considers the project’s impact on net tax revenues for the state, deducting the costs of public services needed for the project.
The type of data that will be requested of companies was also carefully considered, Siegelman said.
“A great deal of pains have been taken to attract them here, so we needed to make the requests reasonable,” he said. “And we needed a way to calculate it in a way that an expert would say, ‘Yes, that’s the best way to do it; I can’t think of any better way to do it.'”
As for the Wells Fargo project, the benefits go well beyond the economic, Blouin said.
“This has a ripple effect in terms of future growth and a very positive impact in terms of holding jobs in the area,” he said.
“From a recruitment perspective, it moves us up the food chain quite a bit.”
TAX REBATE NOT NECCESSARY, COUNCIL MEMBER SAYS
The West Des Moines City Council set an expensive precedent in approving a $5 million property tax rebate to Wells Fargo and Co., according to Councilman Brad Olson.
But West Des Moines Mayor Gene Meyer said the tax rebate is justified by the magnitude of the project.
Olson was the only member of the council to vote against the incentive package last week. The full rebate will be granted if Wells Fargo reaches its employment goal of 3,300 full-time equivalent positions by 2010, with the first half triggered in late 2007 if half the employment goal is met by then.
“We’ve never offered rebates before, we’ve never had to offer rebates before, and we didn’t have to offer them in this situation,” said Olson, who said he otherwise supported the infrastructure incentive package. “That would not have been a deciding factor for Wells Fargo to come here or not.”
Meyer, however, said he views the $4 million in annual tax revenue the city expects from the project alone as justification for providing the rebates. “Along with that is the payroll, and the number of people that will shop, eat and entertain in our community” because of the project, he said.
Though the vote did set a precedent, Meyer said, the council is not likely to approve other tax rebates unless they’re for a project similar in magnitude to Wells Fargo’s.